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Fed officials clashed with Bernanke over stimulus plan, minutes reveal

Details of minutes from meeting on 9 August show some favoured far bolder action than that taken

Federal Reserve officials clashed over how to boost the stubbornly weak US economy, minutes of their last policy-setting meeting showed.

Details of the minutes from the Fed’s meeting on 9 August show some favoured far bolder action than that taken, arguing for a third round of asset purchases, or “quantitative easing”. They eventually settled on a pledge to keep rates near zero until at least the middle of 2013.

The meeting was contentious, with three out of 10 voting officials disagreeing with chairman Ben Bernanke’s decision to announce he plans to keep rates close to zero for another two years.

“A few members felt that recent economic developments justified a more substantial move,” according to Federal Open Market Committee meeting minutes. “Participants noted a deterioration in labour market conditions, slower household spending, a drop in consumer and business confidence and continued weakness in the housing sector.”

The meeting came after data showed the US economy barely grew in the first half of the year, sparking fears of a double-dip recession and wild stock swings.

“Some participants noted that additional asset purchases could be used to provide more accommodation by lowering longer-term interest rates,” the minutes revealed, without elaborating.

Others were unconvinced that the Fed was in any position to bolster the US’s insipid recovery. “Some participants judged that none of the tools available to the committee would likely do much to promote a faster economic recovery,” the minutes said.

Officials were downbeat on the economy , noting that unemployment is likely to remain high until the end of next year.

Fed officials had been expecting economic conditions to improve over the summer and the Fed has downgraded its projections for economic growth for 2011 and 2012. According to the minutes: “Many participants also saw an increase in the downside risks to economic growth.”

Stock prices rose after the minutes were released as investors bet that the Fed may step in to further bolster the economy.

The Dow Jones Industrial Average rose 20.70 points, or 0.2%, to 11559.95, after dropping 110 points early in the day following disappointing consumer confidence figures. The Dow Jones has risen 3.7% in the last three trading days.

Speaking at Jackson Hole in Wyoming last Friday, Bernanke said the Fed was considering other options to support the economy. He stopped short of providing details, but said the Fed would meet for two days in September instead of one as originally planned.

Unemployment has hovered around 9% for about two years but has shown small improvements recently. Barack Obama is set to make a key speech on jobs next week. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds