WASHINGTON (AP) — Federal Reserve officials stuck with the pace of their $600 billion Treasury bond-buying program last month because the economy wasn’t improving fast enough to make a noticeable dent in unemployment.
Spending by consumers and businesses improved heading into the final month of 2010, and Congress was on the verge of enacting a tax-cut package that would bolster the economy, Fed officials said. That made them more confident the economic recovery would gain momentum, according to minutes of the Fed’s closed-door meeting on Dec. 14.
Risks still loomed, the minutes said, particularly a weak housing market and spending cuts and layoffs from state and local governments. So the Fed voted 10-1 to stick with its plan to buy the bonds through June to try to lower interest rates, spur spending and lift stock prices.
Still, with the economy gaining strength, the risks of deflation have “receded somewhat over recent months,” the Fed minutes said. Deflation is a widespread drop in prices and wages and in the values of homes and stocks. A fear of deflation was one reason the Fed launched the bond-buying program.
With unemployment high and factories still operating well below capacity, “slack” in the economy will keep a lid on inflation, Fed officials said. Businesses have limited ability to increase the prices they charge to customers, they said. And the weak labor market is limiting the power of workers to negotiate big wage gains, the minutes said.
Fed officials said they would regularly review the pace and the size of bond-buying program in the months ahead. The Fed left open the door to buying fewer bonds if the economy strengthens more than expected, or buying more if it weakens.
However, some officials “indicated that they had a fairly high threshold for making changes to the program,” the minutes said. The minutes didn’t identify who those officials were. The minutes usually provide a broad narrative of the Fed’s closed-door deliberations, rather than specifics on views of individual Fed officials.
The minutes showed that policymakers have varying views of where the economy is going. A few said they expected better economic growth in 2011 than first thought. Others noted the risks: a large supply of unsold homes, banking and financial strains in Europe, and pressure on state and local governments to balance their budgets. Those differences in opinion would make it difficult for Fed Chairman Ben S. Bernanke and his colleagues to agree to change to the program, if needed.
Please read our comment policy before commenting.