Fed officials are worried about economy, divided over what to do about it


The U.S. Federal Reserve building stands in Washington, D.C., U.S., on Saturday, Dec. 31, 2011. Federal Reserve Chairman Ben S. Bernanke could double press briefings to improve understanding of policy changes that may include signaling interest rates will stay near zero longer, economists said. Photographer: Brendan Smialowski/Bloomberg (Brendan Smialowski/BLOOMBERG)

Federal Reserve leaders are worried about the economy. Their assessment of economic growth and employment has worsened, and many think it could still get worse.

But they are deeply divided over what to do about it — whether to act, how to act, when to act, according to Wednesday’s release of the minutes from the central bank’s June policymaking meeting.

“A few members expressed the view that further policy stimulus would be necessary,” the minutes said of the 19 officials on the Federal Open Markets Committee. “Several others noted that additional policy action could be warranted if the economic recovery were to lose momentum.”

Alarmed by the slowdown in growth this spring and the renewed weakness in the job market, the Fed in June extended a bond-buying program that seeks to keep long-term interest rates low. The extension came along with new projections that lowered expectations for economic growth and improvements in the unemployment rate.

With Friday’s weak jobs report and a slowdown in other sectors of the economy, many economists expect the Fed to launch a new bond-buying program later this year. The Fed previously launched two rounds of bond purchases, which pump hundreds of billions of dollars into the economy with the purchase of Treasury and mortgage bonds.

But the Fed minutes, which are customarily released three weeks after the meeting, suggested that there is not a groundswell of support for such an effort.

Only two Fed members expected additional purchases, while just two others said they would consider them if the economy worsened.

The takeaway is probably that the Fed will not consider any major new actions unless the economy deteriorates even more. The Fed next meets at the end of the month and will announce any policy actions on Aug. 1.

“There is clearly support for further easing if the slowdown is persistent,” said Dean Maki, chief U.S. economist at Barclays. “We expect some pickup in job growth over the next few months and, thus, do not expect” additional bond purchases.

Fed Chairman Ben S. Bernanke could hint of new action, if it is to occur, in congressional testimony next week or in his major policy speech at the Jackson Hole, Wyo., monetary policy summit in late August ahead of the Fed’s September meeting.

A more modest alternative to bond purchases would be to make a clear commitment to holding interest rates near zero percent for several more years. The Fed today only projects rates will continue to be near zero until late 2014.

The minutes said that the Fed was considering what other steps the central bank might take to more effectively communicate its intentions to the public — perhaps giving a more detailed outline of how the Fed would respond to different economic conditions.

But the minutes also said that although several Fed officials said they saw significant risks to the economy, the central bank’s ability to respond would be limited, given that the Fed’s benchmark interest rate is already near zero.

Zachary A. Goldfarb is a staff writer covering the White House, focusing on President Obama’s economic, financial and fiscal policy.
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