Many participants expected that a [new large-scale asset purchase program] could provide additional support for the economic recovery both by putting downward pressure on longer-term interest rates and by contributing to easier financial conditions more broadly. In addition, some participants noted that a new program might boost business and consumer confidence and reinforce the Committee’s commitment to making sustained progress toward its mandated objectives. [Emphasis added]
This came from the minutes of the Fed Open Market Committee’s July 31-August 1 meeting that were released today. Emphasis should be placed on the word “many” which I believe is a code word for a majority of FOMC members.
Their take on the economy:
Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.
They note that price inflation is low but unemployment is still high, giving them the rationale to introduce QE3. That is, their “dual” mandate to keep prices steady and increase employment is only partially fulfilled, and that politically unacceptable high unemployment (8.3%) is their policy focus.
Thus they conclude:
The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
Here focus on the word “will” in “will provide” which indicates a more aggressive approach to further money pumping. Compare that to their prior meeting on June 19-20 which gave cold comfort to those wanting more QE:
The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
It appears that the (inflation) doves have won, the hawks have lost, and barring a miracle recovery, it is likely that the Fed will announce a new round of quantitative easing (QE3) soon, perhaps at the annual Jackson Hole meeting on August 31. The next FOMC meeting is Sept. 12-13, so the policy would not be enacted until then.
This is not a guess; from the summary of the participant’s discussion:
Nonetheless, many members expected that at the end of 2014, the unemployment rate would still be well above their estimates of its longer-term normal rate and that inflation would be at or below the Committee’s longer-run objective of 2 percent. A number of them indicated that additional accommodation could help foster a more rapid improvement in labor market conditions in an environment in which price pressures were likely to be subdued. 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.
It is unlikely that there will be any relief from the current economic malaise “fairly soon” as readers have observed from our commentary on recent and long-term data trends. That would be especially so for unemployment.
I think there is some validity to the concept that businesses have put plans on hold until after the elections because there is so much uncertainty about which way policy will go. The NFIB’s latest survey of small businesses (they comprise one-half of business activity and employment) shows that business confidence is down and job growth has stagnated. According to the report, the three top concerns of businesses were: taxes, government regulations and red tape, and poor sales. It doesn’t sound like recovery is just around the corner.
The NFIB’s commentary to the report notes:
[W]ith all the data showing painfully slow economic growth, the Administration continues to promote increases in taxes and regulatory costs. Some “experts” argue that the marginal rates don’t matter to hiring and real investment spending and that there is no uncertainty, at least that impacts economic activity. We teach differently in our business schools and economics courses, uncertainty is a core concept in our business theories and models and there is considerable empirical support for the adverse impact of uncertainty on decision making.
I think “fairly soon” means fairly soon.