Federal Reserve officials signaled at their August meeting that they would consider going beyond a modest program to purchase government debt if necessary to boost the economy.
Minutes of the Fed’s discussions from the Aug. 10 meeting show the central bank recognized that the economy could need further stimulus beyond the debt purchases. Those are intended to lower interest rates on a range of consumer loans.
The minutes, which were released Tuesday, did not spell out what new steps might be taken. But they do indicate that the officials focused attention on the modest move the Fed did take at the meeting, which would invest a small amount of proceeds from its huge mortgage bond portfolio in Treasury securities.
Some Fed officials argued that reinvesting proceeds from the Fed’s holdings of mortgage securities “could send an inappropriate signal to investors about the committee’s readiness to resume large-scale asset purchases,” the minutes said.
One member objected and said making the change could complicate the Fed’s eventual exit from its period of aggressive credit easing, which began more than two years ago as the country plunged into a deep recession.
The minutes are not verbatim and do not identify speakers.
In the end, the Federal Open Market Committee, the panel of Fed board members and regional bank presidents who set interest rates, voted 9-1 to support the modest easing move. The only dissent came from Kansas City Federal Reserve Bank President Thomas Hoenig.
The minutes said that the committee believed that the most likely outcome for the economy was that it would continue to grow and would avoid a destabilizing bout of deflation when prices and wages decline.
But the panel said it was prepared to go further to guard against either a return to recession or deflation.
The minutes said the Fed panel agreed it would “need to consider steps it could take to provide additional policy stimulus tools if the outlook were to weaken appreciably further.”
Federal Reserve Chairman Ben Bernanke discussed a range of options that could be employed at a Fed conference Friday in Wyoming.
In that speech, Bernanke said he believed that the economy would continue to grow modestly in the second half of this year and then rebound to stronger growth in 2011.
(Copyright 2010 by The Associated Press. All Rights Reserved.)