Fed officials considered new communications strategy, minutes show

WASHINGTON — Federal Reserve policymakers in their last meeting voted almost unanimously for a new bond-buying program to boost growth, but they were far from unified in terms of how much good they thought the new stimulus would do for the real economy.

Fed members also considered adopting more changes in their communication strategy to give the public greater clarity about the their decision-making on interest rates, according to minutes of their last monetary policy meeting, released Thursday with the usual three-week lag.

Officials at the central bank generally agreed last month that without further monetary stimulus, “economic growth might not be strong enough to generate sustained improvement in labor market conditions,” the minutes said. Fed Chairman Ben S. Bernanke has repeatedly expressed worries about the nation’s stubbornly high unemployment rate and the risks of severe economic damage caused by persistently weak job growth.

With Bernanke pushing for more stimulus. Fed committee members voted 11 to 1 last month to launch a new stimulus to buy $40 billion worth of mortgage-backed securities a month. Combining the new bond buying with previously existing programs, the Fed said it would increase its holdings of longer-term securities about $85 billion a month through the end of the year, in an effort to push down long-term interest rates.

The action has helped drive down mortgage rates to record lows, with the interest rate for a 30-year mortgage averaging 3.36%, down from 3.4% a week ago, Freddie Mac said Thursday. Refinancing activity has surged in recent days.

Still, it’s far from clear how much more rates can dip and how much overall punch the latest stimulus will have for the economy. In the account of the Fed’s last meeting, some participants noted that past bond-buying efforts were effective because they were undertaken during periods of market stress or when deflation risks were high -- conditions that don’t exist today.

What’s more, the minutes show, “a few expressed skepticism that additional policy accommodation could help spur an economy that they saw as held back by uncertainties and a range of structural issues.”

In addition to launching an open-ended bond-buying program, Fed policymakers also said last month that they were likely to keep short-term interest rates near zero through at least the middle of 2015, adding six months to their previous pledge. This forward guidance was aimed at giving greater clarity to businesses and individuals about the likely path of the Fed’s policymaking, so they would be more inclined to make investments, hire and take longer-term risks.

The minutes revealed that Fed officials supported setting explicit targets for when the central bank would be inclined to make changes in its interest-rate policies. Many Fed members said they would like to include specific goals, or thresholds, for the labor market and inflation indicators, seeing that as a more effective way of communicating the Fed’s future behavior. But Fed officials noted the difficulty of agreeing on numerical targets and thought that further study of this plan would be needed.

At last month’s meeting, the Fed also made clear it was prepared to do even more “if the outlook for the labor market does not improve substantially.” And the central bank said it would keep its easy-money policies in place “for a considerable time after the economic recovery strengthens.”

The minutes state that this new language was not meant to indicate that the Fed expected the economy to remain weak through mid-2015. Most officials actually see economic growth accelerating sharply in 2014 from this year’s tepid 2% rate. Instead, the statement “reflected the committee’s intention to support a stronger economic recovery,” according to the minutes.

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