Federal Reserve officials debated the risks of beginning an ambitious new stimulus policy before ultimately giving it a green light, according to minutes of the central bank’s September meeting released Thursday.
The minutes show officials concerned during their two-day meeting that without further action, the unemployment rate could remain stubbornly high. Officials were also troubled by signs of slowing growth abroad, including in China, and the possibility of a so-called fiscal cliff at home.
The decision: a dramatic vow by the Fed to keep pressing the necessary levers until the economy no longer needs help.
Last month, the Fed announced it would launch a program to buy mortgage-backed securities at a pace of $40 billion a month and to hold interest rates near zero at least through mid-2015. The goal is to lower long-term interest rates and encourage spending and investment.
Only one of the 12 voting members of the Fed’s governing committee dissented from the decision.
“Members generally judged that without additional policy accommodations, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” the minutes said.
But the document also shows the members carefully weighing the risks of their actions.
A few officials said they were skeptical that actions by the Fed could jolt an economy that they felt was being “held back by uncertainties and a range of structural issues.”
Several said they were worried that the Fed’s actions could make it harder to unwind policy later on without triggering high inflation. One person suggested that keeping long-term interest rates low for this long could lead some investors to take excessive risks, potentially undermining the stability of the economy.
But most decided ultimately that the Fed could handle these risks and “make adjustments to its purchases, as needed.”
Officials also wondered whether the Fed should provide the public with numerical targets for the labor market and inflation--thresholds that would help people understand what the Fed’s goals were. But some officials thought that exact numbers would be “too simple” and not capture the “complexities of the economy.” People might also interpret the thresholds as explicit triggers that would cause the Fed to act in a certain way.
People at the meeting also felt that a strong commitment from the Fed could potentially lift consumer and business confidence. The Fed has come under criticism by some for failing to fulfill its dual mandate of keeping inflation low--and minimizing unemployment.