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Federal Reserve officials split over new stimulus program

Fed officials debated at their two-day meeting in June whether and when the central bank should expand its efforts to spur growth, according to minutes of the meeting.

July 12, 2012|By Don Lee, Los Angeles Times

WASHINGTON — Federal Reserve policymakers are split over whether to launch another big stimulus program.

Fed officials debated at their two-day meeting in June whether and when the central bank should expand its efforts to spur growth with something similar to another round of major bond purchases, according to minutes of the meeting released Wednesday.

Stocks slipped slightly after the release of the minutes as the account of the Fed's deliberations seemed to deflate investors' hopes for a more imminent stimulus from the Fed.

"Although a few members were calling for more accommodation, there was no sign that they were rushing to pull the trigger," said Steven Ricchiuto, chief economist at Mizuho Securities, in a note to clients.

"Moreover, the committee seems to be looking for alternative means to stimulate the economy, further reducing" the likelihood that the Fed will undertake a third round of major bond purchases, he said.

At their June 19-20 meeting, Fed officials voted to keep the central bank's short-term interest rate near zero at least through late 2014, affirming a pledge they first made in January.

By an 11-1 vote, policymakers also decided last month to extend a modest stimulus program of selling short-term bonds and using the proceeds to buy longer-term securities — a program known as Operation Twist that is aimed at holding down long-term interest rates.

But the Fed's latest meeting was before last Friday's release of the June jobs report, which showed a third straight month of subpar job growth. Analysts then said the June employment data increased the odds that the central bank would launch new stimulus action. The Fed's next policy-setting meeting is July 31 to Aug. 1.

In their June meeting, Fed policymakers downgraded their projections for economic growth and employment.

The minutes, released with the usual three-week lag, showed that Fed officials were increasingly worried about the Eurozone debt crisis. They also expressed concerns about the possibility of a sharp fiscal tightening in the U.S.

At the same time, the minutes indicate that Fed policymakers didn't see eye to eye on the threshold for taking additional action.

"A few members expressed the view that further policy stimulus likely would be necessary to promote satisfactory growth in employment and to ensure that the inflation rate would be at the committee's goal," the minutes read.

But "several others" indicated that additional efforts could be warranted only if the economic recovery were to "lose momentum." The minutes made clear that some Fed policymakers were concerned that the central bank's easy-money policies posed inflationary risks down the road.

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