–No Consensus On Changing QE2; Most See More Gradual GDP Acceleration
By Denny Gulino
WASHINGTON (MNI) – In contrast to the lackluster statement issued
after the Jan. 26 FOMC meeting, members found themselves “more positive”
about the recovery and how it is gradually strengthening, the minutes of
their meeting showed Wednesday.
“The participants generally expressed greater confidence that the
economic recovery would be sustained and would gradually strengthen over
coming quarters,” the minutes said. “Their more positive assessment
reflected both the tenor of the incoming economic data and information
received from business contacts since the previous meeting.”
Yet the members directed that their concluding statement last month
be little changed and in fact, it read like Fed boilerplate with its dry
observation the FOMC “confirms that the economic recovery is
continuing.”
Their actual discussion touched several times on improved household
spending and holiday sales, saying they was “somewhat better than
expected.” They added that while business contacts were still cautious,
they too “had importantly increased their confidence.”
“The incoming data indicated that households stepped up sharply
their purchases of durable goods, particularly automobiles, last
quarter,” the minutes said, supporting the participants’ judgment “that
the economic recovery was on a firmer footing.”
Risks to the outlook, they found, had become “broadly balanced” yet
still with “significant risks to both sides.”
While some expressed some discomfort with the increases in energy
and other commodity prices, “others, however, noted that the
pass-through from increases in commodity prices to broad measures of
consumer price inflation in the United States had generally been fairly
small.”
As for QE2’s pace and duration, the discussion produced no
consensus that it should be shortened with only a “few” members noting
that a “sufficiently strong” recovery “could make it appropriate to
consider reducing the pace or overall size of the purchase program.”
The bulk of the members’ discussions reflected in the minutes had a
positive tone and that carried over into their update of the Board
members’ and regional bank president’s economic projections.
The “central tendency” for GDP this year extended from 3.4% to a
high of 3.9%, three tenths of a point above the November projection.
For 2012, the high side projection was moderated a tiny amount, to
4.4% from the previous 4.5%. In 2013 and for the “longer run” the
projections were nearly unchanged.
The projection for the unemployment rate was modified less,
shaving a tenth of a point on both ends of the range, to 8.8% to
9.0% this year. Similarly small changes were made in future years and
none at all for the “longer run” reading’s of 5.0% to 6.0% after in
2014. For 2013, the unemployment rate is still as high as 7.2% and no
lower than 6.8%.
The range of central tendency projections for core PCE inflation
narrowed to 1.0% to 1.3%. In November the range was more than twice that
much, from 0.9% to 1.6%. There was almost no change made to future years
and 2013 was seen ending with core PCE running no higher than 2.0%.
A total of 74 FOMC members, regional bank presidents and Fed staff
were listed as attending at least one of the two days of meetings in
January.
Those present also listened to a staff presentation on structural
unemployment, the minutes said. “Participants noted that many of the
factors that contributed to the recent apparent rise in structural
unemployment were likely to recede over time,” the minutes said.
** Market News International Washington Bureau: 202-371-2121 **
[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]
