While the central bank had been actively exploring additional stimulus last year — and several members publicly called for additional action — the minutes suggest that that is unlikely to happen at the upcoming April meeting, and perhaps not in the months following if the economy continues to heal.
“A couple of members indicated that the initiation of additional stimulus 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,” the minutes said.
Many economists, despite the Fed’s statements, have suggested that they expect the Fed to act because they expect the recent economic strength to abate. While not suggesting any new action, Fed officials seem to agree that the robustness of the recent recovery will subside.
“Most participants did not interpret the recent economic and financial information as pointing to a material revision to the outlook for 2013 and 2014,” the minutes said.
Among those factors holding back the recovery, according to the minutes, were slow growth in foreign countries, fiscal tightening, a weak housing market, further household deleveraging and uncertainty among households and businesses.
The minutes suggest that Fed officials are particularly concerned about the automatic federal budget cuts and tax hikes that are set to take effect in January 2013 unless Congress takes new action.
“It was noted that if agreement was not reached on a longer-term plan for the federal budget, an abrupt and sharp fiscal tightening would occur at the start of 2013.”
Were that to happen, additional stimulus could take the form of more asset purchases — perhaps channeling additional money into the mortgage market to bring down rates.
“Despite signs of improvement or stabilization in some local housing markets, most participants agreed that the housing sector remained depressed,” the minutes said.
Other options could include pledging to keep interest rates at near-zero levels through 2014 — right now the Fed only projects to keep them at that level — or swapping short-term securities for long-term securities to bring down long-term rates.
But none of these actions appeared imminent as the economy improved.
“Meeting participants agreed that the information received since the Committee’s previous meeting, while mixed, had been positive, on balance, and suggested that the economy had been expanding moderately.”
The Fed took notice of rising gas and oil prices, but expressed the view that “after the temporary effect of the rise in oil and gasoline prices had run its course, inflation would be at or below the 2 percent rate that they judge most consistent with the Committee’s dual mandate,” the minutes said.
The minutes said that a few Fed officials were worried that inflation may run too low as people remain unemployed at elevated levels, while others were worried that inflation could run above normal.
The next Fed meeting is April 24-25.