WASHINGTON (MNI) – The following is the text of the Committee
Policy Action portion of the Minutes of the June Federal Open Market
Committee meeting, released Wednesday, July 11:

Committee members saw the information received over the
intermeeting period as suggesting that the economy had been expanding
moderately. However, growth in employment had slowed in recent months,
and almost all members saw the unemployment rate as still elevated
relative to levels that they viewed as consistent with the Committee’s
mandate. Members generally expected growth to be moderate over coming
quarters and then to pick up very gradually, with the unemployment rate
declining only slowly. Most projected somewhat slower growth through
next year, and a smaller reduction in unemployment, than they had
projected in April. Furthermore, strains in global financial markets,
which largely stemmed from the sovereign debt and banking situation in
Europe, had increased during the intermeeting period and continued to
pose significant downside risks to economic activity both here and
abroad, making the outlook quite uncertain. The possibility that U.S.
fiscal policy would be more contractionary than anticipated was also
cited as a downside risk. Inflation had slowed, mainly reflecting the
decline in the prices of crude oil and gasoline in recent months.
Averaging through its recent fluctuations, inflation appeared to be
running near the Committee’s 2 percent longer-run objective; with
longerterm inflation expectations stable, members anticipated that
inflation over the medium run would be at or below that rate. Some
members judged that persistent slack in resource utilization posed
downside risks to the outlook for inflation. In contrast, one member
thought that maintaining the current highly accommodative stance of
monetary policy well into 2014 would pose upside risks to inflation.

In their discussion of monetary policy for the period ahead,
members agreed that it would be appropriate to keep the target range for
the federal funds rate at 0 to 0.25% percent in order to support a
stronger economic recovery and to help ensure that inflation, over time,
is at the 2 percent rate that the Committee judges most consistent with
its mandate. In addition, all members but one agreed that it would be
appropriate to continue through the end of this year the Committee’s
program to extend the average maturity of the Federal Reserve’s holdings
of securities; specifically, they agreed to continue purchasing Treasury
securities with remaining maturities of 6 years to 30 years at the
current pace of about $44 billion per month while selling or redeeming
an equal amount of Treasury securities with remaining maturities of
approximately 3 years or less. These steps would increase the Federal
Reserve’s holdings of longer- term Treasury securities by about $267
billion while reducing its holdings of shorter-term Treasury securities
by the same amount. Members also agreed to maintain the Committee’s
existing policy regarding the reinvestment of principal payments from
Federal Reserve holdings of agency securities into agency MBS. Members
generally judged that continuing the maturity extension program would
put some downward pressure on longer-term interest rates and help make
broader financial conditions more accommodative. Some members noted the
risk that continued purchases of longer-term Treasury securities could,
at some point, lead to deterioration in the functioning of the Treasury
securities market that could undermine the intended effects of the
policy. However, members generally agreed that such risks seemed low at
present, and were outweighed by the expected benefits of the action.
Several members noted that the downward pressure on longer-term rates
from continuing the Committee’s maturity extension program was likely to
be modest. One member anticipated little if any effect on economic
growth and unemployment and did not agree that the outlook for economic
activity and inflation called for further policy accommodation.

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 and the
changes to the economic outlook. In light of their assessment of the
economic situation, 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. Some Committee members
indicated that their policy judgment reflected in part their perception
of significant downside risks to growth, especially since the
Committee’s ability to respond to weaker-than-expected economic
conditions would be somewhat limited by the constraint imposed on
monetary policy when the policy rate is at or near its effective lower
bound. Members again noted that the forward guidance is conditional on
economic developments and that the date given in the statement would be
subject to revision should there be a significant change in the economic
outlook.

A few members expressed the view that further policy stimulus
likely would be necessary to promote satisfactory growth in employment
and to ensure that the inflation rate would be at the Committee’s goal.
Several others noted that additional policy action could be warranted if
the economic recovery were to lose momentum, if the downside risks to
the forecast became sufficiently pronounced, or if inflation seemed
likely to run persistently below the Committee’s longer-run objective.
The Committee agreed that it was prepared to take further action as
appropriate to promote a stronger economic recovery and sustained
improvement in labor market conditions in a context of price stability.
A few members observed that it would be helpful to have a better
understanding of how large the Federal Reserve’s asset purchases would
have to be to cause a meaningful deterioration in securities market
functioning, and of the potential costs of such deterioration for the
economy as a whole.

** MNI Washington Bureau: 202-371-2121 **

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