Excerpt on policy from March 19-20 FOMC minutes

The following is an excerpt covering the Federal Open Market Committee's discussion of monetary policy taken from the minutes of the FOMC's March 19-20 meeting, which were released on Wednesday.

For a full text, see http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

"Committee members saw the information received over the intermeeting period as suggesting that moderate economic growth had resumed following a pause late last year. Labor market conditions had shown signs of improvement, but the unemployment rate remained elevated. Household spending and business fixed investment had advanced, and the housing sector had strengthened further, but fiscal policy had become somewhat more restrictive. The Committee expected that, with appropriate monetary policy accommodation, economic growth would proceed at a moderate pace and result in a gradual decline in the unemployment rate toward levels that the Committee judges consistent with its dual mandate. Members generally continued to anticipate that, with longer-term inflation expectations stable and slack in resource utilization remaining, inflation over the medium term would likely run at or below the Committee's 2 percent objective.

In their discussion of monetary policy for the period ahead, members saw the economic outlook as little changed since the previous meeting, and, consequently, all but one member judged that a highly accommodative stance of monetary policy was warranted in order to foster a stronger economic recovery in a context of price stability. The Committee agreed that it would be appropriate to continue purchases of MBS at a pace of $40 billion per month and purchases of longer-term Treasury securities at a pace of $45 billion per month, as well as to maintain the Committee's reinvestment policies. The Committee also retained its forward guidance about the federal funds rate, including the thresholds on the unemployment and inflation rates. One member dissented from the Committee's policy decision, expressing concern that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in inflation expectations.

Members stressed that any changes to the purchase program should be conditional on continuing assessments both of labor market and inflation developments and of the efficacy and costs of asset purchases. In light of the current review of benefits and costs, one member judged that the pace of purchases should ideally be slowed immediately. A few members felt that the risks and costs of purchases, along with the improved outlook since last fall, would likely make a reduction in the pace of purchases appropriate around midyear, with purchases ending later this year. Several others thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end. Two members indicated that purchases might well continue at the current pace at least through the end of the year. It was also noted that were the outlook to deteriorate, the pace of purchases could be increased. In light of this discussion, the Committee included language in the statement to be released following the meeting in part to make explicit that the size, pace, and composition of its asset purchases were conditional not only on the likely efficacy and costs of those purchases, but also on the ex- tent of progress toward the Committee's economic objectives."