By Steven K. Beckner

FOMC participants attached “an unusually high degree of
uncertainty” to their projections.

The projections represent the “central tendency” forecast of Fed
governors and Federal Reserve Bank presidents and assume “appropriate
monetary policy” over the forecast period.

By contrast, in their last quarterly forecast prepared at the June
22-23 meeting, FOMC policymakers projected GDP growth of 3.0 to 3.5% in
2010; 3.5 to 4.2% in 2011, and 3.5 to 4.5% in 2012. Those projections
were reduced from those made in April.

The June forecasts for unemployment, which were also gloomier than
those made in April, were 9.2 to 9.5% for 2010; 8.3 to 8.7% in 2011 and
7.1 to 7.5% in 2012.

PCE inflation was projected in June to run 1.0 to 1.1% in 2010, 1.1
to 1.6% in 2011 and 1.0 to 1.7% in 2012. Core PCE inflation was
projected at 0.8 to 1.0% in 2010; 0.9 to 1.3% in 2011, and 1.0 to 1.5%
in 2012. All of those earlier inflation forecasts were down from those
made in April.

Between the September and November meetings, the FOMC held a
wide-ranging but inconclusive videoconference meeting.

According to the minutes of that Oct. 15 meeting, the FOMC
discussed “issues associated with its monetary policy framework,
including alternative ways to express and communicate the Committee’s
objectives, possibilities for supplementing the Committee’s
communication about its policy decisions, the merits of smaller and more
frequent adjustments in the Federal Reserve’s intended securities
holdings versus larger and less frequent adjustments, and the potential
costs and benefits of targeting a term interest rate.”

“Participants expressed a range of views about the potential costs
and benefits of quantifying the Committee’s interpretation of its
statutory mandate to promote price stability by adopting a numerical
inflation objective or a target path for the price level,” say the
minutes.

Ultimately, it was decided that an inflation target or price level
target was not needed because the FOMC’s current long-run projections of
inflation “convey considerable information about participants’
assessments of their statutory objectives.”

The videoconference also included a discussion of “whether it might
be useful for the Chairman to hold occasional press briefings to provide
more detailed information to the public regarding the Committee’s
assessment of the outlook and its policy decisionmaking than is included
in Committee’s short postmeeting statements.”

Ahead of the FOMC’s decision to buy $600 billion in Treasury
securities by the middle of next year, the FOMC discussed “the relative
merits of smaller and more frequent adjustments versus larger and less
frequent adjustments in the Federal Reserve’s intended securities
holdings.”

The minutes dislose that “participants generally agreed that large
adjustments had been appropriate when economic activity was declining
sharply in response to the financial crisis.”

“In current circumstances, however, most saw advantages to a more
incremental approach that would involve smaller changes in the
Committee’s holdings of securities calibrated to incoming data.”

In the discussion of “the potential benefits and costs of setting a
target for a term interest rate,” the minutes say “some noted that
targeting the yield on a term security could be an effective way to
reduce longer-term interest rates and thus provide additional stimulus
to the economy.”

“But participants also noted potentially large risks, including the
risk that the Federal Reserve might find itself buying undesirably large
amounts of the relevant security in order to keep its yield close to the
target level,” they add.

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** Market News International **

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