Fed Dissension on Display in FOMC Minutes

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The policy debate flaring within the Federal Reserve Board came into sharper focus Tuesday with the release of minutes showing some members favor even stronger measures to ramp up economic economy.

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At its Aug. 9 meeting of the Federal Open Market Committee a divided board announced that interest rates would remain at their current low rates until mid-2013. Three members of the 10-person board disagreed with the move, expressing skepticism that any further Fed moves could have a significant impact on the economy.

Minutes of those meetings released Tuesday show that some of the board members actually wanted to take more aggressive measures to put a jolt in the economy.

The minutes didnt name the members, but, according to the minutes, they felt that recent economic developments justified a more substantial move than simply maintaining interest rates at near zero.

Participants noted a deterioration in labor market conditions, slower household spending, a drop in consumer and business confidence and continued weakness in the housing sector, the minutes state.

The public disagreement among Fed policy makers is unusual but hardly surprising given the length of the economic downturn and the seeming inability of any government program to serve as a catalyst for recovery.

Dissenters within the Fed believe the easy money policies of the past three years since the financial crisis of 2008 have had limited success (if any) and are now contributing to growing inflation. That group includes Richard Fisher, president of the Dallas Fed, Charles Plosser of Philadelphia and Narayana Kocherlakota of the Minneapolis Fed.

They oppose, for instance, another round of quantitative easing, the policy of buying U.S. Treasuries in order to pump money into financial markets. The Fed has authorized some $3 trillion in such purchases since 2008.

Moreover, at the Fed's August meeting the dissenters argued in favor of tying low interest rates to key data figures such as the unemployment rate so that if the jobless rate falls interest rates would rise. After dipping slightly earlier this year, a miserable June report pushed the unemployment rate to 9.2%, the highest this year.

Chairman Ben Bernanke, the leader of the easy money policy makers, has been steadfast if somewhat vague in assuring investors, economists and market watchers of all stripes that hes willing to take additional measures if necessary.

In the spring, as the economic recovery dimmed, Bernanke maintained that the slowdown was likely due to temporary factors mostly related to one-time weather outbreaks and political unrest in the Middle East.

But other factors have kicked in since, not least a resurgence of the European debt crisis, and fears have grown that the U.S. is headed for a double-dip recession.

Bernanke said last week at the Feds annual gathering at Jackson Hole, Wyoming, that the central bank hasnt run out of weapons to fight the sluggish economy but he didnt specify what he had in mind.

At the FOMC meeting earlier this month, Fed members slashed their forecasts for the rest of the year, the fourth time in a row that Fed policy makers had to revise their near-term outlook downward.

The minutes released Tuesday said the FOMC members will continue to debate the size of their role in the recovery at next months meeting, which has been expanded to two days from one.

"The two-day FOMC meeting on September 20-21 will lay the ground for a fierce debate, but arguments for further stimulus should have the upper hand if economic weakness persists and inflation moderates," said IHS Global Insight U.S. Economist Gregory Daco.

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