THE MINUTES of the Federal Reserve’s latest meeting released yesterday showed growing tension between members, as the panel edged towards further quantitative easing to help rouse the American economy.
The panel of banking governors took more than five hours to reach an agreement on 21 September – around twice as long as meetings earlier in the year.
Many of the panel felt the need to act “before long” if the economy fails to improve, but members argued over a number of options to stimulate the economy, from simply publishing the Fed’s targets for inflation rates through to buying billions of dollars of long-term Treasury bonds.
Long-term dissenter Thomas Hoenig was the only governor to vote against the whole of the Fed’s decision to hold interest rates at the historic low of zero to 0.25 per cent.
Hoenig expanded on his position in a speech yesterday, saying that the Fed needs to be mindful of the wider effects of its decisions on the currency markets. “As desperate as I am to see unemployment drop down, I don’t want to take short-term measures that I don’t think in the long run will solve that problem,” he told the National Association of Business Economics.
Many bystanders said that QE2 was inevitable after the minutes were published yesterday, but were unsure of how far the stimulus will go.
“The Fed is moving closer to another round of quantitative easing but also wants to weigh the benefits and risks, and also, importantly, find a way to communicate its intentions to the market,” said Michael Sheldon, chief financial market strategist at RDM Financial. “The Fed has almost boxed themselves into a corner in the sense that the market expects some type of activity.”
The tilt towards intervening in the economy is mirrored in the UK’s monetary policy committee, where some members are gunning for more QE.