FOMC Minutes – August 30, 2011

Looks like we have some eager FOMC members, so I suspect that we will have a serious discussion on QE 3 during the next FOMC meeting which will be held on 20th and 21st September.

Integral version.

Discussion on additional monetary accommodation.

Participants discussed the range of policy tools available to promote a stronger economic recovery should the Committee judge that providing additional monetary accommodation was warranted. Reinforcing the Committee’s forward guidance about the likely path of monetary policy was seen as a possible way to reduce interest rates and provide greater support to the economic expansion; a few participants emphasized that guidance focusing solely on the state of the economy would be preferable to guidance that named specific spans of time or calendar dates. Some participants noted that additional asset purchases could be used to provide more accommodation by lowering longer-term interest rates. Others suggested that increasing the average maturity of the System’s portfolio–perhaps by selling securities with relatively short remaining maturities and purchasing securities with relatively long remaining maturities–could have a similar effect on longer-term interest rates. Such an approach would not boost the size of the Federal Reserve’s balance sheet and the quantity of reserve balances. A few participants noted that a reduction in the interest rate paid on excess reserve balances could also be helpful in easing financial conditions.

Decision on rates.

Those viewing a shift toward more accommodative policy as appropriate generally agreed that a strengthening of the Committee’s forward guidance regarding the federal funds rate, by being more explicit about the period over which the Committee expected the federal funds rate to remain exceptionally low, would be a measured response to the deterioration in the outlook over the intermeeting period. …

The Committee agreed to keep the target range for the federal funds rate at 0 to 1/4 percent and to state that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. That anticipated path for the federal funds rate was viewed both as appropriate in light of most members’ outlook for the economy and as generally consistent with some prescriptions for monetary policy based on historical and model-based analysis.

Fisher, Kocherlakota and Plosser dissenting:

In contrast, some participants judged that none of the tools available to the Committee would likely do much to promote a faster economic recovery, either because the headwinds that the economy faced would unwind only gradually and that process could not be accelerated with monetary policy or because recent events had significantly lowered the path of potential output. Consequently, these participants thought that providing additional stimulus at this time would risk boosting inflation without providing a significant gain in output or employment.

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