The Federal Open Market Committee’s March meeting minutes have been released, following an early leak of the data, reports Financial Times.
It adds the minutes reveal a debate over whether easing measures need to be pulled back. The minutes say, “Only a few participants [think] the economy [will] be weak enough to keeping QE going at its current pace until late in the year.”
The committee met on March 19 and 20, 2013 to discuss the performance of the U.S. economy, and to determine whether quantitative easing measures are effective.
FOMC members found economic data compiled since their January meeting was slightly more positive. In particular, the minutes say, “Participants judged the economy had returned to moderate growth following a pause late last year, and a few noted the downside risks may have diminished.
“Conditions in labor markets [show] signs of improvement, although the unemployment rate remains elevated. Spending by households and businesses continues to expand, perhaps reflecting some increased optimism.”
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FOMC members also note the housing market has firmed, with monetary policy likely providing important support to these developments.
In contrast, some members said, “Fiscal policy was exerting significant near-term restraint on the economy.” They anticipate “growth will proceed at a moderate pace and the unemployment rate [will] decline gradually toward levels consistent with the Committee’s mandate.”
In addition, inflation has been lower than the Committee’s 2% objective for some time, with nearly all members predicting this will continue.
Despite a growing economy, the meeting minutes also point out, “[U.S.] Fiscal policy appears to have become more restrictive, leaving the outlook for the economy little changed.”
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What’s more, FOMC says, “The uncertainty around [our] forecast for economic activity [is] similar to the average level over the past 20 years. However, the risks were viewed as skewed to the downside, reflecting in part the concerns about the situation in Europe and the possibility of a more severe tightening in U.S. fiscal policy than currently anticipated.”
Most importantly, committee members also gave presentations on whether the Federal Reserve’s asset purchases are still contributing to economic growth. In general, they “judged the macroeconomic benefits of the current purchase program…outweigh the likely costs and risks.”
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However, they’ll continue to assess the effectiveness and need of further easing. This is because they’re concerned “additional asset purchases could complicate the eventual firming of policy.”
The minutes caution that continued easing could impair “the Committee’s control over the federal funds rate. A few participants raised the possibility of an undesirable rise in inflation. However, others expressed confidence in the Committee’s exit tools and its resolve to keep inflation near its longer-run goal.”
Members add there could be an “adverse effect on market functioning from mortgage-backed security sales during the normalization of the Federal Reserve’s balance sheet. Although the Committee’s asset purchases have had little apparent effect on securities market functioning to date, some FOMC participants felt future asset sales could prove more challenging.”
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To eliminate this risk, the Committee suggested it might hold its mortgage-backed securities to maturity rather than selling them.
In the end, the quarter’s lackluster economic data pushed the Committee to support “a highly accommodative stance of monetary policy…in order to foster a stronger economic recovery in a context of price stability.”
It will continue purchases of mortgage-backed securities at a pace of $40 billion per month, and purchases of longer-term Treasury securities at a pace of $45 billion per month.
The minutes reveal, “The Committee also retained its forward guidance about the federal funds rate, including the thresholds on the unemployment and inflation rates. One member dissented from the Committee’s policy decision[s], though.”
This member continued to stress continued high levels of monetary accommodation would amplify “the risks of future economic and financial imbalances”, so the issue of whether to halt easing needs to be revisited in future meetings.
Future FOMC meetings will be in April, mid-June, late July and then mid-September. The next meeting of the Committee will be held from April 30, 2013 to May 1, 2013.
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