LITTLE ROCK — Federal Reserve policymakers clashed over the benefits and risks of initiating a $600 billion program to rejuvenate the economy, but voted for it anyway, according to minutes of their closed deliberations released Tuesday.
Despite the 10-1 vote for the program, the minutes from the Nov. 3 meeting show that some Fed officials had concerns about a second round of stimulus. The minutes also reveal that the Fed held a secret meeting in mid-October to talk about its communications strategy.
Some officials thought the additional purchases of government debt would have limited effect in revving up the economy. Some also worried about risks - unleashing inflation or causing a destabilizing slide in the value of the U.S. dollar.
Most expected the purchases “to help promote a somewhat stronger recovery in output and employment while also helping return inflation, over time, to levels consistent with” the Fed’s legislative mandate, the Fed’s Open Market Committee said in the minutes.
“Some participants noted concerns that additional expansion of the Federal Reserve’s balance sheet could put unwanted downward pressure on the dollar’s value in foreign exchange markets,” the minutes said.
In the end, Fed 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 dual mission of maximizing employment and making sure prices are on an even keel had been “disappointingly slow.”
The Fed downgraded its forecasts for this year and next. Fed officials said that economic growth would be weaker and unemployment higher than previously estimated in June.
The economy will grow only 2.4 percent to 2.5 percent this year, Fed officials said Tuesday in an updated forecast. That’s down sharply from a previous projection of 3 percent to 3.5 percent. Next year, the economy will expand by 3 percent to 3.6 percent, the Fed said, also much lower than its June forecast.
Fed officials project that unemployment won’t change much this year, averaging between 9.5 percent and 9.7 percent. The current unemployment rate is 9.6 percent. Progress in reducing unemployment has been “disappointingly slow,” the central bank said, according to the minutes of its Nov. 2-3 meeting.
The Fed also revealed that policymakers in a separate meeting on Oct. 15 discussed ways to improve their communications with investors and the public.
At that video conference, Fed officials talked about whether it might be useful for the Fed chief to hold occasional news conferences to provide more detailed information and insights into the Fed’s thinking. No decision was made.
Fed officials also weighed at the October meeting whether the Fed needed to adopt an explicit inflation target.
Inflation has been running below the Fed’s comfort zone of between 1.5 percent and 2 percent. That spurred some concern of deflation - a prolonged and dangerous drop in prices, wages and in the values of homes and stocks. Fed officials didn’t adopt an explicit inflation target. Instead, they noted that such information is contained in the Fed’s quarterly economic forecasts.
Information for this article was contributed by Jeannine Aversa and Christopher S. Rugaber of The Associated Press and by Scott Lanman of Bloomberg News.
Business, Pages 27 on 11/24/2010