NEW YORK – Although a “few” members of the Federal Open Market Committee were “uncertain” about the benefits of buying $600 billion of longer-term Treasury securities by mid-year, they felt that the time was “not appropriate” to change the quantitative easing at this point, according to minutes of the Feb. 15 FOMC meeting.
The panel will continue the asset-purchase program “in order to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with the Committee’s mandate,” according to the minutes. “Specifically, the Committee maintained its existing policy of reinvesting principal payments from its securities holdings and reaffirmed its intention to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011.”
Since November, SOMA’s holdings increased by $310 billion, the minutes noted. To meet the $600 billion goal, the Fed will have to buy about $80 billion securities a month. A tapering of the program was deemed unnecessary.
At the meeting, members determined “that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, were likely to warrant exceptionally low levels for the federal funds rate for an extended period.”
Expectations for the federal funds rate and yields on nominal Treasury securities “were little changed over the intermeeting period,” the minutes stated. A bump in inflation expectations for the next five year were attributed to the spike in food and oil prices, but the inflation projections for five- to 10-years forward “were little changed, suggesting that longer-term inflation expectations remained stable.”
“Participants observed that rapidly rising commodity prices posed upside risks to the stability of longer-term inflation expectations, and thus to the outlook for inflation, even as they posed downside risks to the outlook for growth in consumer spending and business investment. In addition, participants noted that unfolding events in the Middle East and North Africa, along with the recent earthquake, tsunami, and subsequent developments in Japan, had further increased uncertainty about the economic outlook,” the minutes noted.
In deciding to keep the Fed funds rate and QE2 unchanged, the committee weighed “that the economic recovery was on a firmer footing and that overall conditions in the labor market were gradually improving,” but unemployment “remained elevated relative to levels that the Committee judged to be consistent, over the longer run, with its statutory mandate to foster maximum employment and price stability. Similarly, measures of underlying inflation continued to be somewhat low relative to levels seen as consistent with the dual mandate over the longer run. With longer-term inflation expectations remaining stable and measures of underlying inflation subdued, members anticipated that recent increases in the prices of energy and other commodities would result in only a transitory increase in headline inflation.”
