There are widening divisions among officials of the Federal Reserve over the value of its efforts to reduce unemployment, but the authors of its bond-buying policy remain firmly in control, according to an official account of the January meeting of the Fed’s policy-making committee.
An increasingly outspoken minority of Fed officials
are concerned that monthly purchases of about $85 billion in Treasury
securities and mortgage-backed SUV Accessories wholesalerssecurities
are doing more harm than good. They argue the effort may need to end
even before the nation’s unemployment rate drops, because it is
encouraging excessive risk-taking and could make it harder to control
But the Federal Open Market Committee reiterated its
determination in January to hold course until there was “substantial
improvement” in the outlook for job growth, and several officials
cautioned at the meeting that the greater risk to the economy was in
stopping too soon, according to the account, Running Board supplierswhich was published after a standard three-week delay.
officials “noted examples of past instances in which policy makers had
prematurely removed accommodation, with adverse effects on economic
growth, employment and price stability,” it said. “They also stressed
the importance of communicating the committee’s commitment to
maintaining a highly accommodative stance of policy as long as warranted
by economic conditions.”
Ian Shepherdson, chief economist at
Pantheon Macroeconomic Advisors, said investors should not be misled by
the amount of space in the Fed’s account concerned about its current
policies, because the Fed’s chairman, Ben S. Bernanke, and his
supporters, continue to regard the asset Side Steps supplierspurchases as a necessary and effective strategy to foster job growth.
view Mr. Bernanke as being firmly in charge of the committee, and very
dovish indeed,” Mr. Shepherdson wrote in a note to clients. He said he
expected the Fed’s asset purchases to continue at the current pace for
the rest of the year.
While officials pushing for an earlier end
to asset purchases do not have nearly enough votes on the 12-member
committee to force a change in policy, they could reduce the impact of
the Fed’s efforts by convincing investors that purchases are even
slightly more likely to end sooner.
Historically, it is often
true that outspoken opposition has produced a moderation in Fed policy,
because the committee prefers to operate by consensus. But Mr. Bernanke
in recent years has demonstrated that he can and will maintain majority
support in the face of persistent dissent.
His hand is
strengthened by the fact that some Fed officials want to do still more
to stimulate the economy. Narayana Kocherlakota, president of the
Federal Reserve Bank of Minneapolis, has said that the Fed should hold
short-term interest rates near zero at least until the unemployment rate
falls below 5.5 percent. The Fed has said that it intends to hold rates
near zero at least until unemploymentDoor Sills suppliers falls below 6.5 percent. The rate in January was 7.9 percent.
Fed could also be fortified in its current policies if Congress
continues to cut spending. Another round of across-the-board cuts is
scheduled to take effect March 1. The Congressional Budget Office
estimates the cuts would reduce growth by 0.6 percentage points this
year, and employment by about 750,000 jobs.
There is little
internal support for increasing the pace of securities purchases, but
the account says that some officials raised the possibility of
maintaining a portion of the Fed’s investment portfolio for a longer
period as the economy recovers.
The theory, which also underpins
the Fed’s plan to suppress interest rates for several more years, is
that the Fed cannot do much more now, but it can compensate by
maintaining its efforts for longer than it otherwise would. Holding onto
the assets longer would maintain downward pressure on interest rates.
The account said the committee planned a review of the asset purchase policy at its next scheduled meeting on March 19 and 20.
meeting account shows Fed officials generally expected a slow
improvement in economic conditions this year, and were not overly
concerned that the economy had not expanded, or expanded only modestly,
in the final months of 2012. But they do not expect the economy to
expand fast enough to significantly reduce unemployment.
The account also indicated that “a EXHAUST TIPS wholesalenumber”
of officials are concerned that the economy is suffering permanent
damage, partly because people unemployed for long periods are losing
their skills, which could impede growth for years to come.
Fed’s vice chairwoman, Janet L. Yellen, said in a speech this month that
inflation remained low and steady, while unemployment remained
stubbornly high. As a result, she said, “it is entirely appropriate for
progress in attaining maximum employment to take center stage in
determining the committee’s policy stance.”
But some Fed
officials have expressed growing unease that, even if inflation remained
under control, asset purchases might disrupt financial markets. One
concern is that low interest rates will encourage excessive risk-taking,
inflating new asset bubbles that will inevitably pop. The Fed’s
purchases also may disrupt the normal operations of financial markets by
constraining the supply of safe assets.
A Fed governor, Jeremy
C. Stein, said this month that he saw “a fairly significant pattern of
reaching-for-yield behavior emerging in corporate credit,” referring to a
rise in the sale of new junk bonds, or high-risk corporate debt.
Stein said he did not see any reason for an immediate change in Fed
policy, but Esther L. George, president of the Federal Reserve Bank of
Kansas City, cited similar concerns in opposing the current policy at
the January meeting.