WASHINGTON: The
Federal Reserve is mulling additional asset purchases next year to boost
jobs amid a fragile economy, the minutes of a policy meeting released
Wednesday showed.
With the current $45 billion a month "Operation
Twist" asset adjustment program scheduled to end in December, the
minutes suggested that the Fed was ready to go ahead with more outright
bond purchases, aimed at pushing long-term interest rates lower.
"A
number of participants indicated that additional asset purchases would
likely be appropriate next year after the conclusion of the maturity
extension program in order to achieve a substantial improvement in the
labour market," the document said.
A new program would overlap with the "QE3" open-ended $40 billion a month asset purchase program announced in September.
Participants
at the central bank's Federal Open Market Committee on October 23-24
discussed the impact of its longstanding near-zero interest rate policy
and other measures aimed at helping the US recover from the 2008-2009
severe recession.
At the meeting, the FOMC stayed the course on
monetary policy, but the meeting minutes revealed divisions, including
concerns that low rates will unleash inflation and questions about the
effectiveness of massive asset purchases, or quantitative easing (QE).
Participants
generally agreed that in determining the appropriate size, pace, and
composition of further purchases, "they would need to carefully assess
the efficacy of asset purchases in fostering stronger economic activity
and consider the potential risks and costs of such purchases."
Participants
were meanwhile undecided on whether the Fed should set explicit targets
for unemployment and inflation to better indicate when it might raise
interest rates.
The Fed officials generally viewed the policy
actions as having been "effective" in easing financial conditions, with
lower rates supporting spending for housing, automobiles and other
big-ticket goods.
Though the participants considered information
on US economic activity indicated modest growth, monthly job gains
remained modest.
"Many members noted that, without sufficient
policy accommodation, economic growth might not be strong enough to
generate sustained improvement in the labor market."
The United
States added a better-than-expected 171,000 jobs in October, though the
unemployment rose to 7.9 per cent, after a surprising three-point drop
in September to 7.8 per cent.
Recent data has shown the labour
market recovery is picking up momentum. However, the number of long-term
unemployed, people without work for at least 27 weeks, rose to 5.0
million last month.
Economists say the stuttering pace of
economic growth -- at an annual 2.0 per cent in the third quarter --
remains well below the rate needed to significantly bring down
unemployment.
WASHINGTON: Despite
signs of revival in the housing sector and a lower jobless rate, a
cautious US Federal Reserve is expected to keep its stimulus programmes
in place at its policy meeting this week.
Six weeks after
breaking out a new bond-buying programme labelled QE3 to shore up the
economy, analysts see little reason to expect the Fed's policy board,
the Federal Open Market Committee, to reverse direction in its session
on Tuesday and Wednesday.
The signs of recovery remain too
feeble, and the overhanging risks too many - the US election on November
6 and the "fiscal cliff" crunch, the eurozone crisis and China's
slowdown - to justify a policy change.
"The recent upturn in
economic activity is not enough to force the Fed's hand to change now.
It is far too soon for the Fed to react and will more likely reaffirm
their commitment to QE3," said Chris Low at FTN Financial.
"After
all, the economy is still adding fewer than 150,000 jobs a month, not
enough to cover demographic changes or meet (Fed chairman Ben)
Bernanke's goals," Low said.
At their last meeting, the Fed
launched QE3 - a "quantitative easing" operation of buying in $40
billion worth of bonds monthly to press long-term interest rates lower -
with the express aim of sparking companies to invest and hire.
Bernanke's
concern over the slow pace of job creation has mounted over the past
year and by the September 12-13 FOMC meeting, most of the members of the
policy board had gotten in line behind him.
Likewise, his view
that inflation is not a threat that requires more caution about stimulus
has also been endorsed by the committee members.
That has not
likely changed in the weeks since then, despite a surprise 0.3
percentage point fall in the national unemployment rate in September, to
7.8 percent - the lowest level since January 2009.
While the
baseline number looked good, other figures - the overall number of
unemployed, and those who dropped out of the workforce - indicated that
the US economy's jobs machine remains week.
Since then other data
has been mixed: consumer spending seems stronger and consumer sentiment
is higher, but industrial production has weakened and exports are down.
The Fed's Beige Book survey of regional economies released October 10 recognised only a modest pickup in activity since August.
But
that could be enough to change the tenor of the Fed's discussions, from
one of mulling how to deal with a deteriorating economy to one of how
to anticipate a potential breakout.
The Fed still has to assess
the two targets of its interest rate policy: its mandates of managing
inflation and keeping unemployment down.
Compared to last year,
says Narayana Kocherlakota, head of the Fed's Minneapolis branch, the
worry about inflation among FOMC members has mostly disappeared, despite
its key interest rate still being held at next to zero.
"The
terms 'hawkish' and 'dovish' presume that the committee faces a tension
between its two mandates," he said in an October 10 speech.
"But
the committee does not see any tension between its two mandates now. And
its long-run unemployment forecasts suggest that it does not anticipate
any tension between the two mandates until the unemployment rate is
considerably lower."
Indeed, in the September meeting, Bernanke
made clear that the low rate policy will remain in place until there is a
substantial improvement in the country's employment situation.
The
FOMC is expected then to talk more about how it will signal its views
and intentions - whether, for instance, to set a specific goal for the
unemployment rate, at which it might increase interest rates.
Nomura
analysts said they expect FOMC participants "to spend considerable time
in furthering the discussion around how to communicate the Fed's
intention and craft a consensus forecast," as well as what they will do
when a previous stimulus programme dubbed Operation Twist ends.
