By Yali N’Diaye

WASHINGTON (MNI) – Members of the Federal Open Market Committee
“generally” sensed that further accommodation might be needed “before
long” and agreed the statement should convey the central bank “was
prepared to provide additional accommodation if needed,” the minutes of
the September 21 monetary policy meeting showed Tuesday.

Indicating the FOMC was prepared to act “accorded with the members’
sense that such accommodation may be appropriate before long, but also
made clear that any decisions would depend upon future information about
the economic situation and outlook,” the minutes read.

The minutes indeed reflect a dissatisfaction among members with the
level of employment and prices.

“Many members considered the recent and anticipated progress toward
meeting the Committee’s mandate of maximum employment and price
stability to be unsatisfactory,” they said.

The members noted in particular that while the economy continued to
grow, it was doing so at a slow pace, although the most recent data came
in “on the strong side of expectations.”

They also stressed that inflation had been running under desired
levels, which they agreed should be made “clear” in the communique,
which read, “Measures of underlying inflation are currently at levels
somewhat below those the Committee judges most consistent, over the
longer run, with its mandate to promote maximum employment and price
stability.”

As a result, “Several members noted that unless the pace of
economic recovery strengthened or underlying inflation moved back toward
a level consistent with the Committee’s mandate, they would consider it
appropriate to take action soon.”

That said, some members argued in favor of collecting more
information before deciding about further monetary stimulus.

As to what form the monetary stimulus should take, the minutes
suggest discussions within the Committee focused on the purchase of
long-term Treasuries.

Some participants, however, said the “economic benefits” of
additional quantitative easing “could be small in current
circumstances.”

Members also discussed how to best communicate additional stimulus,
should they deem it needed.

For now, they mostly agreed on the need to repeat that economic
conditions would likely warrant exceptionally low levels of the federal
funds rate for an extended period.”

“One member, however, believed that continuing to communicate that
expectation in the Committee’s statement would create conditions that
could lead to macroeconomic and financial imbalances.

That was Kansas City Federal Reserve Bank President Thomas Hoenig,
a consistent dissenter since January.

He argued that high unemployment was not due to high interest
rates, but “by an extended period of exceptionally low rates earlier in
the decade that contributed to the housing bubble and subsequent
collapse and recession.”

So holding interest rates too low, he continued, would only create
new imbalances, undermining long-term growth.

He supported again the removal of “extended period” and raising the
fed funds rate toward 1% “before pausing to determine what further
policy actions were needed.”

Hoenig also maintained his argument that reinvesting principal
payments from the Fed’s securities holdings was not required to support
the Committee’s objectives.

September 21, the FOMC again left the fed fund rate in a range of 0
to 1/4%, noting in its statement that the Committee will continue to
monitor the economic outlook as well as financial developments and is
prepared to provide additional accommodation if needed to support the
economic recovery and return inflation, over time, to levels consistent
with its mandate.”

The next FOMC meeting is on November 2 and 3.

** Market News International Washington Bureau: 202-371-2121 **

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