NEW YORK – Federal Reserve official at the most recent meeting of the Federal Open Market Committee “expressed greater confidence” of a sustained economic recovery, strengthening gradually in the “coming quarters” based on economic indicators and business contacts, according to the minutes of the latest FOMC meeting, released Wednesday.
“Although business contacts remained somewhat cautious about the economic outlook, they generally indicated greater optimism regarding their own prospects for sales and hiring than at the time of the previous meeting,” the minutes noted.
Downside risks to the economy diminished, but participants did not change their views of economic activity or inflation much, seeing real GDP growth picking up slightly and inflation remaining subdued.
Strength in household spending in the last quarter encouraged participants, but some were concerned whether this strength could be sustained.
“Indicators of business investment in equipment and software continued to rise,” according to the minutes. Many business contacts “expressed cautious optimism about the durability and strength of the recovery, and some were planning for an expansion in production in order to meet an anticipated rise in sales.”
While residential construction stayed weak, commercial construction “showed some tentative signs of bottoming out.”
Payrolls increased modestly and weekly initial claims trended downward.
“Some participants expressed concern that in a situation in which businesses had been unable to raise might increase them substantially once they found themselves with sufficient pricing power,” the minutes noted.
Also of concern, the public’s concern about the Fed’s balance sheet and its “ability to withdraw monetary accommodation when doing so becomes appropriate,” without sparking inflation.
Turning to monetary policy, the committee unanimously agreed to leave its asset purchase program and its target range for the federal funds rate unchanged. Despite the recovery, it remained “insufficient to bring about a significant improvement in labor market conditions, and measures of underlying inflation had trended downward,” the minutes said. Also “unemployment was expected to remain above, and inflation to remain somewhat below, levels consistent with the Committee’s objectives for some time. Accordingly, the Committee agreed to continue to expand its holdings of longer-term Treasury securities as announced in November 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.”
The FOMC also voted to continue “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.”
While “a few members” were “unsure” if the asset purchase program would help the economy, they felt making a change at this stage “was not appropriate.”
“In addition, the Committee reiterated its expectation that economic conditions were likely to warrant exceptionally low levels for the federal funds rate for an extended period,” the minutes said.
The only changes to the post-meeting statement were minor and reflected short-term economic outlook improvement “and to make clear that the policy decision reflected a continuation of the asset purchase program announced in November.”
