Few Fed officials backed more easing: minutes
WASHINGTON (MarketWatch) -- Only a few officials thought that more asset purchases would be necessary at the Federal Reserve's policy meeting in June, according to the minutes released on Wednesday that drove U.S. stocks lower.
Several others said more action could be warranted if economic conditions deteriorated, the minutes from the June 19 and 20 meeting showed.Read highlights of the Fed minutes.
Only four Fed officials mentioned more quantitative easing in their individual forecasts, two saying they supported more easing and two saying they would consider it.
Fed officials generally agreed that economic growth would remain moderate over coming quarters and then pick up very gradually.
Since the meeting, there has been weak reports for manufacturing and unemployment for June, which may have pushed more Fed officials to support more easing.
Economists have slashed their second-quarter growth estimates in the wake of the weaker-than-expected data.
"Although a few members were calling for more accommodation, there was no sign that they were rushing to pull the trigger," said Steven Ricchiuto, chief economist at Mizuho Securities, in a note to clients.
The minutes also show that several Fed officials want to develop "new tools" to ease financial conditions.
Ricchiuto said the search for alternative means to stimulate the economy further reduced the chances of more quantitative easing.
A few Fed members were worried about the impact of more asset purchases on the bond market. They wanted to know how large an asset-purchase program would have to be to cause "a deterioration in securities market functioning."
Fed Chairman Ben Bernanke will discuss the outlook for monetary policy next week before Congress, and analysts say he may provide an update of the policy makers' views after the recent weak data.
Nigel Gault, chief U.S. economist for IHS Global Insight, said he thinks the Fed is moving toward QE3 but is not ready to "jump quickly."
Bernanke's testimony next week should be "key," he noted.
At the meeting, the Fed lowered its economic forecast, extended its Operation Twist program to the end of the year and highlighted that it was watching the labor market closely.
The Fed interest-rate setting committee will meet again on July 31-Aug. 1.
The central bank officials discussed adding a consensus projection of the path of interest rates over the next two years.
A collective judgment would address a gap between the Fed's statement that it is likely to keep rates close to zero until late 2014 while at the same time six Fed officials said appropriate policy would see the first rate increase come in 2012 or 2013.
Many officials said it would be challenging to develop a consensus forecast given the diversity of views among officials.
The minutes show that the Fed staff trimmed its short-term and medium-run GDP forecasts and also cut its near-term projection for inflation.
Fed officials noted that growth was weaker in June than had been expected at their last meeting in April.
Some Fed officials said that the recent weakness was more likely to be transitory. Consumer spending was seen as holding up.
Policy makers were split on the longer-run inflation outlook. Some saw slack in the economy putting downward pressure on inflation while others said the highly accommodative Fed policy posed upside risks.
There was more concern over the outlook for fiscal policy.
A few FOMC members said that defense contractors were putting in place contingency plans if deep military spending cuts go into effect in 2013.
There were fresh reports of slowing exports to Europe and China.
Michael Hanson, U.S. economist at Bank of America Merrill Lynch, predicted the outlook will be weak enough to warrant Fed easing by their mid-September meeting.
"We look for Fed officials to both push out their forward guidance on rates until at least mid-2015 and to launch QE3," Hanson wrote in a research note.