Federal Reserve policymakers clashed over the benefits and risks of launching a $600 billion program to rejuvenate the economy, but voted for it anyway, according to minutes of their closed-door deliberations released Tuesday.
Despite a 10-1 vote for the program, the minutes from the Nov. 2-3 meeting show that some Fed officials had concerns about embarking on a second round of stimulus.
The minutes also reveal that the Fed held an unusual videoconferenced meeting Oct. 15 to discuss its communications strategy. At that previously unknown meeting, officials considered whether it might be useful for the Fed chief to hold occasional press briefings to provide more detailed information and insights into the Fed’s thinking. No decision was made.
The Fed also discussed at the October meeting whether to adopt an explicit inflation target but decided against it. Inflation has been running below the Fed’s comfort zone of 1.5 percent to 2 percent. That spurred some concern of deflation – a prolonged and dangerous drop in prices, wages and the values of assets such as homes or stocks.
In discussing the bond-purchase program Nov. 3, some officials said they thought the additional purchases would have only limited effect in revving up the economy. The Fed’s Treasury bond-buying program is intended to invigorate the economy in part by lowering interest rates, lifting stock prices and encouraging more spending.
Some also worried about risks – unleashing inflation or causing a destabilizing slide in the value of the U.S. dollar.
In the end, Chairman Ben Bernanke persuaded all but one of his colleagues to back the plan. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, was the sole dissenter.
Explaining the need for more stimulus, the Fed said that progress on its key dual mission of maximizing employment and making sure prices are on an even keel had been “disappointingly slow.”
In fact, the Fed downgraded its forecasts for this year and next. Fed officials said that economic growth would be weaker and unemployment higher than estimated in June.
Fed officials also discussed at the October meeting pumping billions into the economy by targeting a rate for a specific government security. The Fed would then buy bonds to lower the rate on that security to the Fed’s target. Doing so, would be aimed at bolstering the economy. The Fed, however, didn’t go that route.
Instead, the Fed decided to buy $600 billion worth of Treasury bonds over eight months. That decision has provoked a barrage of criticism at home and abroad.
Republican economists and lawmakers have criticized the move, saying it could lead to runaway inflation. Some of them also complain that the Fed is printing money to pay for Uncle Sam’s bloated debt.
China, Brazil, Germany and other countries also are irked by the move, complaining that is a scheme to further drive down the value of the U.S. dollar, giving U.S. exporters a competitive advantage over their foreign rivals.
The Fed has said it will regularly review the bond-buying program and has left the door open to scaling it back if the economy performs better than expected. It could also buy more bonds if the economy weakens.
