Federal Reserve members upheld the current monetary policy that the risk of raising interest rates early outweighs the risk of raising them too late, members of the Federal Open Market Committee said in minutes released from the April 28 monetary policy meeting.
While voting to maintain the federal funds rate in a range between zero and 0.25%, most members agreed to reiterate language that economic conditions were likely to warrant “exceptionally low levels of the federal funds rate for an extended period,” according to the minutes released Wednesday by the Federal Reserve Board.
Concerning the Fed’s agency debt and mortgage-backed securities holdings, most participants said they preferred to “eventually” sell agency debt and MBS. Sales should be "communicated in advance and be conducted at a gradual pace that potentially could be adjusted to respond to changes in economic and financial conditions."
Most participants “favored deferring asset sales for some time,” the minutes said. A majority preferred beginning asset sales some time after the first increase in the FOMC’s short-term interest rates. Some participants preferred “to begin sales relatively soon.” No decisions for a sales schedule were made at the meeting, the minutes said.
Thomas M. Hoenig, the lone FOMC dissenter at each of the three meetings this year, voted against the decision, believing “it was no longer advisable” to include the “exceptionally low levels … for an extended period” language in the policy statement.
The minutes included the Fed’s most recent economic projections. The Fed revised its outlook for 2010 gross domestic product growth higher to a range between 3.2% and 3.7%, from 2.8% to 3.5% in the January estimate.
The unemployment outlook was revised lower to a range of 9.1% to 9.5% for 2010, from 9.5% to 9.7% in January.
Estimates for core personal consumption expenditures, the Fed’s preferred measure of inflation, were revised lower to 0.9%-1.2% in 2010 from 1.1%-1.7% in January.
Beyond 2010, the estimates were little changed from the January estimates.
Members also highlighted the threat posed by the debt crisis in Europe, which was just beginning to intensify when members last met in Washington. Members said rising sovereign debt spreads in Greece, Portugal and other peripheral European counties heightened investors’ anxiety about the fiscal situation of those countries. Since the meeting, the debt crisis in Europe has become exacerbated, and could further delay interest rate increases, some market participants have said.
“Renewed concerns about financial vulnerabilities (and their growth implications) in the weeks since the April meeting should ensure that even the [inflation] hawks are willing to take a wait-and-see approach for some time to come,” analysts at Wrightson ICAP wrote in a research note Wednesday.
