Fed Officials Divided on Need for More Monetary Stimulus

“A few members noted that, depending on how economic conditions evolve, the committee might have to consider providing additional monetary stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run,” the Federal Open Market Committee said in the minutes of its June 21-22 meeting, released Tuesday in Washington.

“On the other hand, a few members viewed the increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant the committee taking steps to begin removing policy accommodation sooner than currently anticipated.”

Policy makers cut their forecasts for growth this year before a July 8 government report showed that employers added jobs in June at the slowest rate in nine months. The Fed chairman, Ben S. Bernanke, said at a June 22 news conference that growth would pick up as energy prices subsided and disruptions of parts from Japanese factories eased, while also leaving the door open to additional stimulus. In their meeting, policy makers also agreed on a strategy for withdrawing record monetary stimulus and adopted a new set of communications guidelines.

A divided Federal Open Market Committee means officials are likely to prolong their low interest-rate policy, said Chris Low, chief economist at FTN Financial in New York.

“The majority view is that they can’t ease because inflation is rising, but at the same time they can’t tighten because the unemployment rate is too high, so they’re on hold,” Mr. Low said.

The minutes show some officials have doubts about whether their policy toolkit has anything more to offer. “A few participants expressed uncertainty about the efficacy of monetary policy in current circumstances but disagreed on the implications for future policy,” the minutes said.

Some members of the committee “saw the recent configuration of slower growth and higher inflation as suggesting that there might be less slack in labor and product markets than had been thought,” the minutes said. In that case, “the withdrawal of monetary accommodation may need to begin sooner than currently anticipated in financial markets.”

The Fed’s Washington-based governors and regional presidents agreed to complete their $600 billion bond-buying program, known as QE2 for the second round of quantitative easing, as scheduled at the end of June.

“The Fed will be watching and waiting to learn more about the economy,” said Michael Feroli, chief United States economist at JPMorgan Chase Company in New York. “One camp is worried about what happens if growth slows more than expected. The other camp is worried about what happens if the rise in inflation isn’t transitory.”

Policy makers also renewed their pledge to hold interest rates “exceptionally low” for an “extended period.” The Fed has kept its target rate in a range of zero to 0.25 percent since December 2008. Mr. Bernanke said at the June press conference the Fed would be “prepared to take additional action, obviously, if conditions warranted,” including the purchase of more Treasury securities.

“Most” committee members said the rise in inflation would “prove transitory” and that over the medium term inflation would “be subdued as long as commodity prices did not continue to rise rapidly and longer-term inflation expectations remained stable.”

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