At their meeting this month, Federal Reserve policy makers were in strong disagreement, with some advocating aggressive options to stimulate the economy and others pressing to do nothing, according to minutes released on Tuesday.
At the time of the Aug. 9 meeting, the Fed disclosed three dissenting votes — unusual given that most decisions are reached by consensus — but it was not known until Tuesday that there was such a broad array of disagreement and such vigorous debate about the options.
In the end, the Federal Open Market Committee took a middle ground, agreeing to keep interest rates near zero through mid-2013.
In addition to debate about the Fed’s approach to aiding the recovery, the meeting was dominated by sobering assessments of the economy’s disappointing performance this summer and downgrades for growth in the next few months. Since the meeting, the government reported that the economy expanded only 0.7 percent in the first six months of the year.
The meeting minutes for the most part do not identify the members or their views. But some members wanted to engage in another round of so-called quantitative easing, or huge asset purchases, which has become a charged topic in the Republican presidential primary campaign. Some wanted merely to change the composition of the assets the Fed already has. Some wanted to reduce the interest rate the Fed pays banks for their excess reserve balances.
And some wanted to do nothing.
“Some participants judged that none of the tools available to the committee would likely do much to promote a faster economic recovery,” the minutes said.
This broad array of proposals may shed some light on why Ben S. Bernanke, the Fed chairman, spent so much of his long-awaited speech last week in Jackson Hole, Wyo., talking about what Congress, rather than the Fed, should do to help the economy: because even within the Fed there is no consensus on the correct course.
At the Aug. 9 meeting, the members ultimately decided to stretch out their next gathering, in September, to a two-day meeting in part because there was so much disagreement, and Fed officials wanted more time to debate their options.
Officials also came to a temporary policy compromise by giving markets clearer guidance on how long interest rates would continue to hover around zero. Some committee members said they wanted to set a calendar deadline, and others preferred to instead peg interest rates to a specific rate of unemployment or inflation.
The calendar-deadline version won out, and in its public statement the Fed pledged to keep its benchmark short-term interest rate at “exceptionally low levels,” for “at least through mid-2013.”
There were three dissenters: Richard W. Fisher, Narayana Kocherlakota and Charles I. Plosser.
Not only did they disagree with the mid-2013 language, they all disagreed for slightly different reasons.
Mr. Fisher said he did not think further monetary easing would do much, since he “felt that it was chiefly nonmonetary factors, such as uncertainty about fiscal and regulatory initiatives, that were restraining domestic capital expenditures, job creation and economic growth.”
Mr. Kocherlakota said he did not believe more easing was appropriate because unemployment had fallen and inflation had risen over the previous year.
And Mr. Plosser worried that the “until at least mid-2013” language might indicate that the Fed’s actions were “no longer contingent on how the economic outlook evolved,” that the Fed’s outlook was “excessively negative” and that the measure would be ineffective at stimulating growth in any case.
The minutes also said that policy makers had expected economic conditions over the summer to have been much better than they turned out and that the Fed was downgrading its projections for economic growth for 2011 and 2012.
Even though some temporary factors might be weighing down the economy, the minutes said, there was worry that “the underlying strength of the economic recovery remained uncertain.”
The participants at the recent Fed meeting did not believe the economy was on the brink of another recession, but some unnamed members indicated that, “with the recovery still somewhat tentative, the economy was vulnerable to adverse shocks.”
Fed officials voiced particular concern about “a deterioration in labor market conditions,” and debated what the longer-term consequences of such high and sustained levels of unemployment might be.
Staff members slightly raised their forecasts for inflation for the rest of this year, indicating that the central bank might be especially unlikely to engage in another round of major asset purchases. These purchases generally raise prices, and the Fed has previously engaged in such quantitative easing in part because policy makers worried that prices might otherwise start falling.
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