–‘Number’ of Members Saw Risk Employment Gains Could Diminish
WASHINGTON (MNI) – The following is the second and final section of
the Federal Open Market Committee minutes of the March 13 meeting
devoted to the views of the participants, published Tuesday:
Many participants noted that strains in global financial markets
had eased somewhat, and that financial conditions were more supportive
of economic growth than at the time of the January meeting. Among the
evidence cited were higher equity prices and better conditions in
corporate credit markets, especially the markets for high-yield bonds
and leveraged loans. Banking contacts were reporting steady, though
modest, growth in C&I loans. Many meeting participants believed that
policy actions in the euro area, notably the Greek debt swap and the
ECB’s longer-term refinancing operations, had helped to ease strains in
financial markets and reduced the downside risks to the U.S. and global
economic outlook. Nonetheless, a number of participants noted that a
longer-term solution to the banking and fiscal problems in the euro area
would require substantial further adjustment in the banking and public
sectors. Participants saw the possibility of disruptions in global
financial markets as continuing to pose a risk to growth. While the
recent readings on consumer price inflation had been subdued,
participants agreed that inflation in the near term would be pushed up
by rising oil and gasoline prices.
A few participants noted that the
crude oil price increases in the latter half of 2010 and the early part
of 2011 had been part of a broad-based rise in commodity prices; in
contrast, non-energy commodity prices had been more stable of late,
which suggested that the recent upward pressure on oil prices was
principally due to geopolitical concerns rather than global economic
growth. A couple of participants noted that recent readings on unit
labor costs had shown a larger increase than earlier, but other
participants pointed to other measures of labor compensation that
continued to show modest increases. With longer-run inflation
expectations still well anchored, most participants anticipated that
after the temporary effect of the rise in oil and gasoline prices had
run its course, inflation would be at or below the 2 percent rate that
they judge most consistent with the Committee’s dual mandate. Indeed, a
few participants were concerned that, with the persistence of
considerable resource slack, inflation might be below the
mandate-consistent rate for some time. Other participants, however, were
worried that inflation pressures could increase as the expansion
continued; these participants argued that, particularly in light of the
recent rise in oil and gasoline prices, maintaining the current highly
accommodative stance of monetary policy over the medium run could erode
the stability of inflation expectations and risk higher inflation.
Committee Policy Action
Members viewed the information on U.S. economic activity received
over the intermeeting period as suggesting that the economy had been
expanding moderately and generally agreed that the economic outlook,
while a bit stronger overall, was broadly similar to that at the time of
their January meeting. Labor market conditions had continued to improve
and unemployment had declined in recent months, but almost all members
saw the unemployment rate as still elevated relative to levels that they
viewed as consistent with the Committee’s mandate over the longer run.
With the economy facing continuing headwinds, members generally expected
a moderate pace of economic growth over coming quarters, with gradual
further declines in the unemployment rate. Strains in global financial
markets, while having eased since January, continued to pose significant
downside risks to economic activity. Recent monthly readings on
inflation had been subdued, and longer-term inflation expectations
remained stable. Against that backdrop, members generally anticipated
that the recent increase in oil and gasoline prices would push up
inflation temporarily, but that subsequently inflation would run at or
below the rate that the Committee judges most consistent with its
mandate.
In their discussion of monetary policy for the period ahead,
members agreed that it would be appropriate to maintain the existing
highly accommodative stance of monetary policy. In particular, they
agreed to keep the target range for the federal funds rate at 0 to
percent, to continue the program of extending the average maturity of
the Federal Reserve’s holdings of securities as announced in September,
and to retain the existing policies regarding the reinvestment of
principal payments from Federal Reserve holdings of securities.
With respect to the statement to be released following the meeting,
members agreed that only relatively small modifications to the first two
paragraphs were needed to reflect the incoming economic data, the
improvement in financial conditions, and the modest changes to the
economic outlook. With the economic outlook over the medium term not
greatly changed, almost all members again agreed to indicate that the
Committee expects to maintain a highly accommodative stance for monetary
policy and currently anticipates that economic conditions — including
low rates of resource utilization and a subdued outlook for inflation
over the medium run — are likely to warrant exceptionally low levels
for the federal funds rate at least through late 2014. Several members
continued to anticipate, as in January, that the unemployment rate would
still be well above their estimates of its longer-term normal level, and
inflation would be at or below the Committee’s longerrun objective, in
late 2014.
It was noted that the Committee’s forward guidance is conditional
on economic developments, and members concurred that the date given in
the statement would be subject to revision in response to significant
changes in the economic outlook. While recent employment data had been
encouraging, a number of members perceived a nonnegligible risk that
improvements in employment could diminish as the year progressed, as had
occurred in 2010 and 2011, and saw this risk as reinforcing the case for
leaving the forward guidance unchanged at this meeting. In contrast, one
member judged that maintaining the current degree of policy
accommodation much beyond this year would likely be inappropriate; that
member anticipated that a tightening of monetary policy would be
necessary well before the end of 2014 in order to keep inflation close
to the Committee’s 2 percent objective.
The Committee also stated that it is prepared to adjust the size
and composition of its securities holdings as appropriate to promote a
stronger economic recovery in a context of price stability. A couple of
members indicated that the initiation of additional stimulus could
become necessary if the economy lost momentum or if inflation seemed
likely to remain below its mandateconsistent rate of 2 percent over the
medium run.
(2 of 2)
** MNI Washington Bureau: 202-371-2121 **
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