Fed Frets Over Need For New Stimulus

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Business World (Digest)

July 15, 2010 Thursday

LENGTH: 357 words

HEADLINE: US Fed frets over need for new stimulus; New US Stimulus

HIGHLIGHT:

US Federal Reserve officials last month felt they should be ready to consider additional steps to boost their country’s economy if an already softening outlook takes a noticeable turn for the worse.

US Federal Reserve officials last month felt they should be ready to consider additional steps to boost their country’s economy if an already softening outlook takes a noticeable turn for the worse.

“As a result of the change in financial conditions, most participants revised down slightly their outlook for economic growth,” minutes of the June 22-23 meeting of the Fed’s policy panel, just out, said.

“The committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably,” they said.

The minutes did not detail any steps the Fed might take if it believed the economy needed more help, but officials and analysts have suggested that buying more longer-term U.S. government debt or mortgage-related securities would be possible approaches. “It suggests that rates are going to stay low for a long time and if necessary the Fed will try to conjure up some other ways to support the economy,” Ward McCarthy, chief financial economist at Jefferies and Co in New York, said of the minutes. Futures markets moved to show traders fully pricing in the first Fed rate hike in August 2011. On Tuesday, they had seen about 98 percent chance of rate hike in June. A number of Fed officials believed risks to economic growth had shifted to the downside, the minutes said. While data ahead of the meeting had suggested the US economy’s recovery was proceeding moderately, financial stress tied to Europe’s budget woes could hit consumer and business spending, in the view of Fed officials. Fed officials trimmed their forecasts for growth this year to a range of between 3 pc and 3.5 pc from the 3.2 pc to 3.7 pc projected in May. The unemployment rate, which stood at 9.5 pc in June, was seen averaging about 9.2 pc to 9.5 pc in the fourth quarter, little changed from their previous quarterly forecast. Fed officials think it could take years for the economy to return to full health, the minutes showed. Officials believe an jobless rate near 5 pc is consistent with “full employment” but their projections showed the unemployment rate still at about 7 pc by the end of 2012. (c) Reuters

LOAD-DATE: July 19, 2010

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