FOMC Minutes Show QE3 On Deck
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The minutes from the August 9th Federal Open Market Committee (FOMC) meeting showed some members were ready to pull the trigger on further monetary easing. Ideas thrown around were additional bond purchases or changing the composition of the balance sheet in favor of owning longer-term securities.
Some FOMC participants believed additional asset purchases would provide more accommodation by lowering longer-term interest rates. Others suggested increasing the average maturity of the portfolio by selling short-term securities and purchasing longer-term securities could have a similar effect on longer-term interest rates. A positive with this approach is that it would not boost the size of the Federal Reserve's balance sheet and the quantity of reserve balances. However, a few participants believed providing additional stimulus at this time
would risk boosting inflation without providing a significant gain in output or employment.
Most of the members agreed the deteriorating economic outlook warranted a Committee response at the meeting. These members viewed a strengthening of the forward guidance on Federal Funds rate as a measured response to the deterioration in the outlook over the intermeeting period. A few members felt recent economic developments justified a more substantial move at this meeting, but they were willing to accept the stronger forward guidance as a step in the direction of additional accommodation.
Some FOMC participants believed additional asset purchases would provide more accommodation by lowering longer-term interest rates. Others suggested increasing the average maturity of the portfolio by selling short-term securities and purchasing longer-term securities could have a similar effect on longer-term interest rates. A positive with this approach is that it would not boost the size of the Federal Reserve's balance sheet and the quantity of reserve balances. However, a few participants believed providing additional stimulus at this time
would risk boosting inflation without providing a significant gain in output or employment.
Most of the members agreed the deteriorating economic outlook warranted a Committee response at the meeting. These members viewed a strengthening of the forward guidance on Federal Funds rate as a measured response to the deterioration in the outlook over the intermeeting period. A few members felt recent economic developments justified a more substantial move at this meeting, but they were willing to accept the stronger forward guidance as a step in the direction of additional accommodation.
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