WASHINGTON - Federal Reserve officials said European sovereign debt concerns weighed on the U.S. economy, but not enough to warrant greater policy accommodation, as members lowered their estimates for economic growth and inflation for 2010, according to the Federal Open Market Committee minutes from the June 22 and 23 meeting.
Several Federal Reserve officials said they see conditions “over the next several years” where both employment and inflation “would likely be below levels” consistent with the Fed’s dual mandate.
Participants said they expect to see the pace of hiring remain low for some time. Some also said high unemployment and downward inflation could “reinforce disinflationary pressures,” according to the minutes.
During the previous Fed meeting, committee members reinforced the Fed’s policy commitment to “exceptionally low levels of the federal funds rate for an extended period.”
The sovereign debt concerns from Europe contributed to wider credit spreads and lower stock prices since April, the minutes said.
Accompanying the minutes were the Fed’s economic projections.
The Fed revised lower its GDP projections to a range of 3.0% to 3.5% for 2010, down from a range of 3.2% to 3.7% made in April.
The Fed’s unemployment estimates were revised to 9.2% to 9.5% for 2010. Its April projection estimated a 9.1% to 9.5% unemployment range.
Estimates for core personal consumption expenditures were revised down to 0.8% to 1.0% from 0.9% to 1.2%.
The committee also discussed asset sales, agreeing that sales of mortgage-backed securities need to take place eventually.
A few participants suggested selling MBS and using the proceeds to purchase Treasury securities of comparable duration, “arguing that doing so would hasten the move toward a Treasury-securities-only portfolio without tightening financial conditions,” according to the minutes.
But participants cautioned against immediate action, partially due to the financial market turbulence stemming from sovereign debt concerns.
