Tags: Fed | inflation | stimulus | rate

Fed Sees No Inflation Risk in Stimulus to Push Down Unemployment

Wednesday, 21 May 2014 02:14 PM

Federal Reserve policy makers said continued stimulus to push unemployment lower doesn’t risk sparking an undesirable jump in the inflation rate.

With inflation expected to remain well below its 2 percent goal, the Federal Open Market Committee doesn’t “face a trade-off between its employment and inflation objectives, and an expansion of aggregate demand would result in further progress relative to both objectives,” according to minutes of their April 29-30 meeting released today in Washington.

Fed officials also discussed the need to improve their guidance on the likely path of interest rates, and they heard a staff presentation on the tools that could eventually be used to control short-term borrowing costs once policy makers decide to lift them above zero.

Policy makers are watching progress toward their goal of full employment as they consider the timing of the first interest-rate increase since 2006. The Fed has said the benchmark rate is likely to stay low for a “considerable time” after it ends a bond-purchase program that’s set to wind down by late this year.

In their presentation, Fed staff said the tools that could be used to control short-term interest rates included overnight reverse-repurchase agreements, the term deposit facility, and interest on excess reserves, the minutes showed. Asset sales were not mentioned.

Participants agreed that “early communication” of their exit strategy “would enhance the clarity and credibility of monetary policy.” While no decisions were taken, “participants generally favored the further testing of various tools,” according to the minutes.

Fed Governors

The policy-setting FOMC is made up of the Fed governors, the president of the Federal Reserve Bank of New York and four seats held by the presidents of the other 11 Fed district banks on a rotating basis.

Fed officials at their March meeting scrapped a pledge to keep the main interest rate low at least as long as the jobless rate exceeded 6.5 percent and the outlook for inflation didn’t exceed 2.5 percent.

The FOMC discarded that commitment after unemployment fell close to the threshold, even as other gauges of the job market showed continued weakness. Instead, policy makers said in March a decision to raise the rate will be based on a range of economic data.

Fed Chair Janet Yellen testified to lawmakers May 7 that the Fed will probably end bond buying in the fall if the labor market continues to improve. Still, she said “a high degree of monetary accommodation remains warranted” with inflation and employment far from the central bank’s goals.

Dudley Comments

Federal Reserve Bank of New York President William C. Dudley said yesterday the pace of eventual interest-rate increases “will probably be relatively slow,” depending on the economy’s progress and how financial markets react.

A “mild” response “might encourage a somewhat faster pace,” he told the New York Association for Business Economics. “If bond yields were to move sharply higher,” on the other hand, “a more cautious approach might be warranted.”

“The Fed is very comfortable in their accommodative stance,” Lindsey Piegza, the Chicago-based chief economist for Sterne, Agee & Leach Inc., told Bloomberg Television May 15. “They’re going to err on the side of caution” and ensure “future growth comes to fruition before changing monetary policy.”

Joblessness fell to a five-year low of 6.3 percent in April, down from 6.7 percent the prior month. Part of the drop stemmed from a decline in the labor-force participation rate to match the lowest level since 1978.

© Copyright 2020 Bloomberg News. All rights reserved.

1Like our page
Federal Reserve policy makers said continued stimulus to push unemployment lower doesn't risk sparking an undesirable jump in the inflation rate.
Fed, inflation, stimulus, rate
Wednesday, 21 May 2014 02:14 PM
Newsmax Media, Inc.
Newsmax TV Live

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved