The Federal Reserve is likely to deliver another round of monetary stimulus “fairly soon” unless the economy improves considerably, minutes from the central bank’s August meeting show.
While the meeting was held before a recent improvement in the economic data, including a stronger-than-expected July reading for U.S. employment, policymakers were pretty categorical about their dissatisfaction with the current outlook.
“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” the Fed said in minutes to its July 31-Aug. 1 meeting.
Fed officials saw significant risks to an already weak U.S. economy, which grew at a sluggish 1.5 percent annual rate in the second quarter. The risks include a worsening of Europe’s financial strains and the looming U.S. budget cuts and tax hikes, which have become commonly known as a fiscal cliff.
Many Fed officials supported extending the central bank’s guidance for the likely timing of an eventual interest rate hike, currently set at late 2014, further into the future. But they decided to defer the decision to the Fed’s Sept. 12-13 meeting, when the central bank will release a new round of economic forecasts.
Officials also actively debated and tested the possibility of developing a consensus Fed forecast.
A couple of policymakers favored lowering the rate the Fed pays banks to park their excess reserves at the central bank, currently at 0.25 percent. But several participants worried that money market funds could run into trouble if their returns are crimped further.