Fed considers more clarity on interest rate policy

MARTIN CRUTSINGER

AP Eco­nom­ics Writer

WASHINGTON — Fed­eral Reserve pol­i­cy­mak­ers this month dis­cussed how they could give busi­nesses and investors more infor­ma­tion about what might trig­ger an increase in inter­est rates, accord­ing to min­utes of the Nov. 1–2 meeting.

But the Fed held off mak­ing any changes.

A panel headed by Vice Chair­man Janet Yellen is explor­ing ways to pro­vide more infor­ma­tion on future cen­tral bank moves. More clar­ity on inter­est rate pol­icy could help reas­sure investors and busi­nesses that rates will stay low.

At its August meet­ing, the Fed said it planned to keep short-term rates near zero until at least mid-2013, as long as eco­nomic growth remained weak.

The Fed has kept its key short-term inter­est at a record low since Decem­ber 2008. That is the rate that banks charge on overnight loans and it serves as the bench­mark for mil­lions of busi­ness and con­sumer loans.

After its Novem­ber meet­ing, the Fed sketched a bleaker out­look for the U.S. econ­omy, which it pre­dicted would grow much more slowly and face higher unem­ploy­ment than it had esti­mated in June.

The Fed announced no new pol­icy actions after the meet­ing. But the gloomier fore­cast increased the like­li­hood that it would take new steps soon.

Some econ­o­mists think the Fed could announce after its Dec. 13 meet­ing a plan to buy mortgage-backed secu­ri­ties, which could directly sup­port the depressed hous­ing mar­ket by low­er­ing loan rates. Another option would be launch­ing a third round of Trea­sury bond pur­chases, sim­i­lar to the $600 bil­lion pro­gram that the Fed brought to a close in June.

The deci­sion to leave pol­icy unchanged in Novem­ber was approved on a 9–1 vote. Charles Evans, the pres­i­dent of the Chicago Fed­eral Reserve Bank, dis­sented after push­ing for stronger efforts to try to boost the economy.

The vote was a shift from the pre­vi­ous two Fed meet­ings when three mem­bers had dis­sented for the oppo­site rea­son. In Sep­tem­ber, the cen­tral bank announced that it would shuf­fle its hold­ings of Trea­sury secu­ri­ties to try to fur­ther lower long-term inter­est rates. The August meet­ing was when the Fed announced its plan to keep short-term inter­est rates low through mid-2013, as long as the econ­omy stayed weak.

The three mem­bers argued those moves increase the risks of future infla­tion. The rest of the board seemed to agree that infla­tion is under con­trol and the Fed should focus more on poli­cies that could help lower the unem­ploy­ment rate.

In Novem­ber, the Fed down­graded its out­look for the econ­omy. It pre­dicted growth of no more than 1.7 per­cent this year and 2.7 per­cent in 2012. Both are below what’s needed to lower the unem­ploy­ment rate, which has been stuck near 9 per­cent since the reces­sion offi­cially ended.

The Fed doesn’t see that chang­ing much. It pre­dicts the unem­ploy­ment rate will aver­age 8.6 per­cent at the end of next year.

At a news con­fer­ence after the meet­ing, Bernanke said the pace of eco­nomic growth is “frus­trat­ingly slow” and said that the cen­tral bank remained “pre­pared to take action as appro­pri­ate to make sure the recov­ery continues.

Posted by AP News on Nov 22 2011. You can follow any responses to this entry through the RSS Feed. Comments can be made below.