Fed Minutes Show FOMC Divided on QE3

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tdp2664 The latest Fed minutes showed a growing divide among hawkish and dovish members over the prospects for a third round of quantitative easing (QE3). One of the key sections of the Fed minutes – a recap of the most recent Federal Open Market Committee (FOMC) meeting – indicated that: A few members observed that, in their judgment, current and prospective economic conditions–including elevated unemployment and inflation at or below the Committee’s objective–could warrant the initiation of additional securities purchases before long. Other members indicated that such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run. In contrast, one member judged that maintaining the current degree of policy accommodation beyond the near term would likely be inappropriate; that member anticipated that a preemptive tightening of monetary policy would be necessary before the end of 2014 to keep inflation close to 2 percent. Additional highlights from the minutes included: – With respect to the economic outlook, participants generally anticipated that economic growth over coming quarters would be modest and, consequently, expected that the unemployment rate would decline only gradually. – A number of factors were seen as likely to restrain the pace of economic expansion, including the slowdown in economic activity abroad, fiscal tightening in the United States, the weak housing market, further household deleveraging, high levels of uncertainty among households and businesses, and the possibility of increased volatility in financial markets until the fiscal and banking issues in the euro area are more fully addressed. – Participants continued to expect these headwinds to ease over time and so anticipated that the recovery would gradually gain strength. However, participants agreed that strains in global financial markets continued to pose significant downside risks to the economic outlook. – With unemployment expected to remain elevated, and with longer-term inflation expectations stable, almost all participants expected inflation to remain subdued in coming quarters–that is, to run at or below the 2 percent level that the Committee judges most consistent with its statutory mandate over the longer run. The Fed minutes can be viewed in their entirety below: http://www.federalreserve.gov/monetarypolicy/fomcminutes20120125.htm View article: Fed Minutes Show FOMC Divided on QE3