WASHINGTON - Members of the Federal Open Market Committee discussed a range of policy options during the Aug. 9 meeting as they tried to agree on stimulus efforts without appearing overzealous in the face of market volatility.
At the meeting, the FOMC announced it would keep the federal funds rate range between zero and 0.25% until mid-2013.
The discussion included one proposal to attach economic conditions on employment and inflation.
FOMC members considered “conditioning the outlook for the level of the federal funds rate on explicit numerical values for the unemployment rate or the inflation rate,” the minutes said.
“Some members argued that doing so would establish greater clarity regarding the committee’s intentions and its likely reaction to future economic developments, while others raised questions about how an appropriate numerical value might be chosen,” according to the minutes.
In the end, no such references were included.
The timeframe, one member said, “could undermine” the Fed’s credibility if a change in timing subsequently became appropriate.
But most members agreed with the decision, stating that a conditional expectation for the level of the federal funds rate through mid-2013 “provided useful guidance to the public,” and they noted that “such an indication did not remove the committee’s flexibility to adjust the policy rate earlier or later if economic conditions do not evolve as the committee currently expects.”
The decision to go with a mid-2013 date drew three dissenters: Richard W. Fisher, Narayana Kocherlakota and Charles I Plosser. These members said they would prefer the FOMC stick with its “extended period” language, which had been in place since December 2008.
Fisher said he was concerned the Fed “did not have enough information to be specific on the time interval.” He feared the committee “risked appearing overly responsive to the recent financial market volatility.”
Plosser said the 2013 date “might well be misinterpreted as suggesting that monetary policy was no longer contingent on how the economic outlook evolved.”
Setting the date, he said, “conveyed an excessively negative assessment of the economy” and that it was “premature” to undertake further policy accommodation.
Kocherlakota believed that in “November 2010, the Committee had chosen a level of accommodation that was well calibrated for the condition of the economy. Since November, inflation had risen and unemployment had fallen, and he did not believe that providing more monetary accommodation was the appropriate response to those changes in the economy.”
