Glum Fed keeping easing options open, minutes show

WASHINGTON Wed Jul 11, 2012 4:23pm EDT

The Federal Reserve building is seen in Washington June 19, 2012. REUTERS/Yuri Gripas

The Federal Reserve building is seen in Washington June 19, 2012.

Credit: Reuters/Yuri Gripas

WASHINGTON (Reuters) - The Federal Reserve is open to the possibility of buying more bonds to stimulate the economy, but conditions might need to worsen for a consensus to build, minutes from the central bank's June meeting released on Wednesday showed.

The Fed in June decided to expand its latest effort to keep long-term rates low, announcing that it would buy an additional $267 billion in long-term bonds with proceeds from short-term notes.

Even given that modest step, many economists expect the U.S. central bank to ease monetary policy further by eventually launching a third round of outright bond purchases that would actually increase the size of the central bank's $2.9 trillion balance sheet.

The minutes of the June 19-20 meeting showed a few officials on the policy-setting Federal Open Market Committee thought the recent weakening in the economy was sufficient to justify bolder action. But the report suggested a majority was not yet on board - at least not before last week's employment report, which showed a paltry 80,000 new jobs were created in June.

"Several (members) 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" of 2 percent, the minutes said.

The U.S. economy grew just 1.9 percent in the first quarter, and many economists expect the recovery's momentum slowed further in the second quarter. Employment growth dropped to just 75,000 per month in the second quarter, below what is seen as needed to bring down the jobless rate.

The Fed sharply downgraded its forecast for growth in U.S. gross domestic product at the June meeting.

(Writing by Pedro da Costa; Edited by Tim Ahmann and Andrea Ricci)

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Comments (2)
moxsee wrote:
The bond buying policy is not the answer. Banks need to loosen loan requirements when the economy is weak. As the economy improves then tighten lending requirements. Banks still do the opposite and the economy suffers.

Past performance is indicative of future results. Bond buying does not work.

Jul 11, 2012 2:46pm EDT  --  Report as abuse
rasputyn wrote:
As Ron Paul says… shut down the federal reserve.

I think that once it is shut down, rent the building out to Washington’s druggies. They will be near Congress so the reps won’t have to go far to get their fixes. Bah! These guys are driving the country to the dogs.

Jul 11, 2012 2:46pm EDT  --  Report as abuse
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