WASHINGTON - Members of the Federal Open Market Committee said they have “a fairly high threshold” for adjustments to the Treasury purchase plan, while they expressed concern that state and local government fiscal conditions remain a detriment to growth, according to the minutes of the Dec. 14 meeting, which were released Tuesday.
The FOMC members agreed to continue buying $600 billion of long-term Treasury securities by the end of the second quarter of 2011. Members said the pace and overall size of the purchase program “would be contingent on economic and financial developments.”
As many economic conditions improved by the Dec. 14 meeting, some members said the Fed’s purchase plan “could trigger undesirable increases in inflation expectations” and actual inflation. The Fed should continue planning for “the eventual exit from the current exceptionally accommodative” monetary policy, the minutes said.
In the six weeks since the purchase plan was announced at the Fed’s Nov. 2-3 meeting, the Federal Reserve Bank of New York purchased $105 billion of Treasuries -- $30 billion from proceeds from principal payments and $75 billion in new securities. The purchases have mostly come in the 2- to 10-year maturity range, but some purchases included longer-term Treasuries and Treasury inflation-protected securities.
In their analysis of the economic outlook, FOMC members said the “ongoing deterioration” of state and local fiscal positions is likely to be a downside to overall growth. The struggle among municipal governments to close budget gaps “could lead to sharp cuts in spending and increases in taxes,” the minutes said.
Other concerns for the economy include financial strains in Europe, the U.S. housing market and a rapid acceleration in U.S. bank lending stemming from the Fed’s accommodative monetary policy.
With unemployment remaining high and inflation low, members also said progress toward the Fed’s dual mandate of maximum employment and price stability “was disappointingly slow.”
Kansas City Federal Reserve Bank President Thomas M. Hoenig was the lone dissenter against the Fed’s decisions. He dissented at every Fed meeting last year. Hoenig said the Fed “should begin preparing markets for a reduction in policy accommodation,” according to the minutes. Hoenig noted that the economic recovery “was shifting from transitory to more sustainable sources of growth” and that the Fed’s monetary stance “was inconsistent” with the Fed’s dual mandate.
