Fed Appears Ready to Launch More Monetary Easing Soon
Most Federal Reserve members appear ready to launch a new round of monetary easing soon because of worries that the US economy is not recovering fast enough, according to minutes of the cental bank's September meeting.
The minutes of the closed-door deliberations, released Tuesday, suggest Fed Chairman Ben Bernanke and his colleagues were closing in on a consensus to launch more asset purchases—mostly longer-term Treasurys—known as quantitative easing.
Members, however, didn't settle on how big the program should be or exactly how it should be structured. Such details are what Fed officials are currently wrestling with as their prepare for the next meeting on Nov. 2-3.
Economists predict Fed officials will decide on that program at that meeting.
The Fed's purchase aims to drive down interest rates on mortgages, corporate debt and other loans. It hopes that this will spur Americans to boost spending, which would strengthen the economy and ultimately chip away at stubbornly high unemployment.
Public remarks by Fed officials since the Sept. 21 meeting suggest the program will be smaller than the $1.7 trillion one it launched during the recession. Under that program, the Fed purchased a mix of mortgage securities and government debt.
The effort was credited with forcing down mortgages rates and providing support to the crippled housing market.
At the September meeting, some Fed officials thought that the economic benefit of a new program could be "small." A smaller program isn't expected to lower rates as much as the Fed's crisis-era program did, economists say.
Moreover, there's concern that even cheaper loans will fail to get people and companies to ramp up their spending. Thus far, they haven't been confident enough in the economy or their own financial prospects to do so.
"It looks like they are moving forward with (more easing,)" Michael Woolfolk, senior currency strategist, BNYy Mellon, told Reuters. "They did not provide much guidance in terms of when they will deliver it, but I think it's fair to expect it to arrive sometime after the election and before the end of the year."
News of the Fed minutes helped stocks pare their losses, while bonds fell further and the dollar gained.
The Fed's move toward further easing came as the central bank's staff lowered its projection for the increase in real economic activity over the second half of 2010. The staff also reduced slightly its forecast of growth next year but continued to anticipate a moderate strengthening of the expansion in 2011 as well as a further pickup in economic growth in 2012.
—AP and Reuters contributed to this report.