The release of the minutes from the September 21 meeting of the Federal Open Market Committee is the latest in a long series of debates about the possibility and effectiveness of a further round of asset-purchases by the Central Bank. The minutes show that a majority of the members of the FOMC are ready to "provide additional monetary policy accommodation" if the economic recovery doesn't spur employment growth and appropriate inflation.
The minutes from September's meeting were released Tuesday in the midst of mixed market feelings about quantitative easing. After the jobs report was released last week, some analysts and investors explained that the markets had "already priced in QE 2" and that the policy was necessary at a large scale to keep the status quo. The facts seemed to support this as the mediocre jobs report, with a deceleration in most indicators, had little negative impact on the equity market.
In the September meeting, most members of the Federal Reserve's monetary policy committee were cautious about the future, and "saw merit in accumulating further information before reaching a decision about providing additional monetary stimulus." Some members were unwilling to engage in further QE unless the outlook worsened. It also becomes apparent that the purchase of longer-term Treasury securities is essentially the only policy possibility the Fed is looking into. The lack of any substantial improvement in the September job report may be the final nudge to galvanize Fed action.
Kansas City Fed president Thomas Hoenig dissented from the FOMC's statement in September, and remains opposed to the central bank's stance. Hoenig blames the high unemployment rate on "exceptionally low rates earlier in the decade that contributed to the housing bubble and subsequent collapse and recession." Hoenig advocates raising rates to "approach 1%" and to allow the Fed balance sheet to shrink as debt holdings mature.
The next FOMC meeting takes place on November 2 or 3. It is expected that the institution headed by Ben Bernanke will further its asset-purchase program while keeping rates between 0 and 0.25%. Bernanke is looking to solve the problem via demand stimulation and inflation expectations, he has the support of most of the Federal Open Market Committee, the market remains expectant.
No comments:
Post a Comment