–In March Only ‘A Couple’ Said Might Need Additional Accommodation
–FOMC Adds More Two-Day Meetings To Schedule as Some Prefer That Format
–Possible Refinements, Enhancements To SEP Being Considered

By Brai Odion-Esene

WASHINGTON (MNI) – The number of senior Federal Reserve officials
open to the idea of additional monetary stimulus should the economic
recovery be at risk rose, according to the minutes from the April 24-25
meeting of the Federal Open Market Committee released Wednesday.

The Fed also released a revised meeting schedule for the rest of
this year and 2013, with more two-day sessions added as “some
participants had expressed a preference for the two-day format over the
one-day format for FOMC meetings,” the minutes said.

In its statement following the last policy meeting, the FOMC said
it will regularly review the size and composition of its securities
holdings and is prepared to adjust those holdings as appropriate to
promote a stronger economic recovery in a context of price stability.

“Several members indicated that additional monetary policy
accommodation could be necessary if the economic recovery lost momentum
or the downside risks to the forecast became great enough,” the minutes
said.

In the minutes from the March meeting, only “a couple of members”
had indicated additional stimulus could become necessary if the economy
lost momentum “or if inflation seemed likely to remain below its mandate
consistent rate of 2% over the medium run.”

As for the Fed’s Operation Twist program, the minutes noted that
“one participant reported that appropriate policy would include
additional balance sheet actions in the near term to mitigate downside
risks to economic growth.”

With regard to interest rates, “about half of the participants”
believed exceptionally low levels of the federal funds rate would remain
appropriate at least until late-2014.

Fed officials noted in the minutes, however, that “the appropriate
stance of monetary policy depends importantly on the evolution of real
activity and inflation over time, their assessments of the appropriate
future path of the federal funds rate would change if economic
conditions were to evolve in an unexpected manner.”

As for the economic outlook, the minutes said the members’
assessments were “little changed,” maintaining the belief growth will
remain moderate over the coming quarters and then pick up gradually.

In light of this expectation, “most” projected a gradual decline in
the U.S. unemployment rate.

The minutes also noted that while incoming economic data led some
FOMC members “to become more confident” about the durability of the
recovery, “others thought it was premature to infer a stronger
underlying trend from the recent positive indicators.”

In the near term, the minutes said Fed officials believed slow
growth in some foreign economies, prospective fiscal tightening in the
United States, slow household income growth, and ongoing weakness in the
housing market would slow the pace of U.S. economic expansion.

“The strains in global financial markets, though generally less
pronounced than last fall, continued to pose a significant risk to the
outlook, and the possibility of a sharp fiscal tightening in the United
States was also considered a sizable risk,” the minutes said.

The release also noted that “some participants” believed the policy
actions taken in Europe to tackle the debt crisis would most likely ease
stress in financial markets, but others countered 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.”

And, forebodingly, the minutes said FOMC members expected global
financial markets would remain focused on the evolving situation in
Europe.

There was also a debate at the meeting over whether structural or
cyclical factors are at work in keeping the unemployment rate high.

“Assessing the extent to which the changes in labor force
participation reflect cyclical factors that will be reversed once the
recovery picks up, as opposed to changes in the trend rate of
participation, was seen as important for understanding unemployment
dynamics going forward,” the minutes said.

As for inflation, the document showed that while most participants
viewed the risks to their inflation outlook “as being roughly balanced,”
some participants saw a risk that inflation pressures could increase as
the expansion continued.

“They pointed to the fact that inflation was currently above target
and were skeptical of models that rely on economic slack to forecast
inflation partly because of the difficulty in measuring slack,
especially in real time,” it said.

Despite recent measures implement to improve its monetary policy
communication, the Fed has continued to explore additional ways to
expand its transparency.

“Committee members discussed the desirability of providing more
clarity about the economic conditions that would likely warrant
maintaining the current target range for the federal funds rate and
those that would indicate that a change in monetary policy was
appropriate.

“The Chairman asked the subcommittee on communications to consider
possible enhancements and refinements to the SEP that might help better
clarify the link between economic developments and the Committees view
of the appropriate stance of monetary policy,” the minutes said.

The revised schedule converts all of the remaining 2012 FOMC
meetings to two days, including those in July September and December
which has originally set for one day, “to provide ample time for the
Committee’s usual discussions.

The July meeting now will occur over a two-day period, July 31 to
August 1; the September meeting will be Sept. 12 to 13 — and will be
followed by the release of FOMC members’ economic projections and Fed
Chair Ben Bernanke’s news conference — and the December meeting will be
Dec. 11-12, in addition to the already-scheduled Oct. 23-24 meeting.

The FOMC also announced that “going forward, the presentation of
the Summary of Economic Projections and the Chairman’s press conference
will occur in conjunction with the meetings scheduled for the third
month of each quarter (March, June, September, and December).”

In addition, despite dissent from Richmond Federal Reserve Bank
President Jeffrey Lacker, the FOMC agreed to extend the Fed’s currency
arrangements with the Bank of Canada and the Bank of Mexico for an
additional year beginning in mid-December 2012.

The arrangement with the Bank of Canada allows for cumulative
drawings of up to $2 billion equivalent, and the arrangement with the
Bank of Mexico allows for cumulative drawings of up to $3 billion
equivalent.

The arrangements are associated with the Fed’s participation in the
North American Framework Agreement of 1994.

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

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,MT$$$$]