WASHINGTON (Reuters) ? Federal Reserve officials mulled a fresh round of bond purchases among other policy tools to ease financial conditions at their last meeting in September, minutes released on Wednesday showed.
"Most members agreed that the revisions to the economic outlook warranted some additional monetary policy accommodation to support a stronger recovery," the minutes of the September 20-21 meeting said.
The Fed has been trying to strengthen a weak recovery with active measures to lower interest rates but unemployment has remained stuck above 9 percent and the U.S. central bank is under political pressure to back off some of its most aggressive stimulus efforts.
Fed officials discussed tools to ease monetary policy that ranged from rebalancing the Fed's portfolio to lengthen its average maturity and put more downward pressure on long-term interest rates -- the step they ultimately took -- to providing explicit guidance about their goals for the labor market.
Markets reacted little to the release of the minutes.
In a statement after the meeting, the Fed warned of significant risks to the already weak U.S. economy as it launched its new plan to lower borrowing costs and bolster the battered housing market.
Two Fed officials wanted stronger action, while three objected to taking any new measures at all, the minutes said. Ultimately, the three officials -- Dallas Federal Reserve Bank President Richard Fisher, Philadelphia Fed chief Charles Plosser and Narayana Kocherlakota of the Minneapolis Fed -- dissented from the Fed's decision.
Plosser cast doubt on the effectiveness of the Fed's attempt to lower borrowing costs by buying $400 billion of longer-term Treasury securities while selling a like amount of shorter-dated bills and notes.
"It doesn't have a whole lot of credibility attached to it," he said in response to questions after a speech.
The Fed has been struggling to spur a stronger recovery and bring down the U.S. unemployment rate, which was stuck above 9 percent in September for a fifth straight month.
It cut overnight interest rates to near zero in December 2008 and bought $2.3 trillion in bonds to try to rekindle economic growth.
As it became clear the recovery was faltering, it took the additional step at a meeting in August of committing to hold overnight borrowing costs at rock-bottom levels through mid-2013 and then said it would rebalance its bond holdings, an approach that observers are calling Operation Twist because of its intended effect on longer-term interest rates.
The Dallas Fed's Fisher said he believes the Fed has done enough. There is a limit to what central banks can do to boost employment, he said in a speech.
Despite dissenting views, there is a consensus at the Fed that more action could be helpful, and in evaluating the options available last month, a number of officials felt further bond buying was the most potent initiative the Fed could muster.
However, the minutes suggest the Fed will be content to tread water with modest interventions unless the economy suffers another shock. A third round of large-scale asset buying, also referred to as quantitative easing, is not imminent, analysts said.
"The Fed may be willing to follow Operation Twist with some more small measures to support the economy. However, it intends to hold QE3 in reserve just in case things get much worse," said Paul Dales, senior U.S. economist for Capital Economics in Toronto.
Large-scale asset purchases have been a lightning rod for controversy abroad and at home, with critics charging the Fed with setting the stage for inflation and debasing the dollar.
Policymakers also discussed setting explicit objectives for the Fed's long-range goals for unemployment. While most officials agreed greater transparency was worthwhile, many felt it would be necessary to communicate those objectives in depth -- something the Fed's terse post-meeting statement is ill-suited for.
Officials decided they needed more time to study the potential side-effects of lowering the interest rate the Fed charges banks on excess reserves.
(Additional reporting by Kristina Cooke in Philadelphia and Pedro Nicolaci da Costa and Jason Lange in Washington; Editing by James Dalgleish)
Source: http://us.rd.yahoo.com/dailynews/rss/economy/*http%3A//news.yahoo.com/s/nm/20111012/bs_nm/us_usa_fed
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