* “Several” felt easing might be need vs “couple” in March
* Only one participant support extending Operation Twist
* Traders now see first rate hike in July 2014, not June
* Fed on hold until outlook changes significantly – Bullard
By Ann Saphir
May 16 (Reuters) – Several Federal Reserve policymakers last
month thought they may need to do more to help the recovery if
it stumbles, but there was almost no support for extending the
central bank’s “Operation Twist” program, due to end in June.
Instead, the minutes of the Fed’s meeting suggested
policymakers favored keeping policy on hold for the time being,
with “some” members saying they would favor changing the Fed’s
current stance “only once they were more confident that the
medium-term outlook or risks to the outlook had changed
significantly.”
St. Louis Fed President James Bullard, whose views are seen
as centrist, on Wednesday echoed that view, saying he expects
the Fed to keep policy on hold until there is a clear change in
economic outlook.
He also warned that the main risk to policy is that the
central bank over-commits to a super-loose course of action.
After their April 24-25 meeting, Fed officials said the weak
economy would likely warrant keeping rates exceptionally low
through late 2014.
Fed Chairman Ben Bernanke at the time said U.S. monetary
policy was “more or less in the right place” but the central
bank would not hesitate to open the monetary spigots further
“should the economy require that additional support.”
That view was underscored in the minutes from the meeting,
released Wednesday, which said several members of the Fed’s
policy-setting committee “indicated that additional monetary
policy accommodation could be necessary if the economic recovery
lost momentum or the downside risks to the forecast became great
enough.”
The Fed remained sober about economic prospects. Members
said the economy had been “expanding moderately” and generally
agreed the economic outlook was broadly similar to that at the
time of their March meeting.
While noting that labor market conditions had improved in
recent months, almost all members said they viewed unemployment
as still elevated and to decline gradually, the minutes said.
Members also cited strains in global markets stemming from
the banking and debt crisis in Europe, and the potential
downside risks from contractionary U.S. fiscal policy.
Risks to the economy remain, data since the meeting shows.
Unemployment fell in April, to 8.1 percent, but only because
people had given up looking for work.
More recently, a political crisis in Greece has sparked
worries the debt-laden country could leave the European Union’s
common currency zone.
Still, a firming domestic housing market and signs of
underlying consumer demand in the latest U.S. retail sales data
have contributed to a sense that the recovery is still on track.
A lone participant in the April policy-setting meeting
thought the Fed should extend its current bond-buying program,
known as Operation Twist, that is due to be completed next
month. That program is designed to push down long-term borrowing
costs by adding to the Fed’s long-term securities holdings,
while selling a like amount of its shorter-term holdings.
But several Fed officials since the April meeting have said
they see no need now for more easing.
Some, including policy hawks like Philadelphia Fed President
Charles Plosser and Minneapolis Fed President Narayana
Kocherlakota, have called for the Fed to start removing
accommodation as soon as this year.
New data included with the minutes suggested there was still
ample support for the current late-2014 guidance.
About half of participants in the April meeting said that
exceptionally low rates would be appropriate at least until late
2014.
The moderately dovish tone of the minutes led traders to
push out to July 2014 their expectations for a first Fed rate
hike, based on short-term interest-rate futures listed at the
Chicago Board of Trade. Before the minutes they saw June 2014 as
the timing for the likely first rate hike.
Economists peg the chance of a third round of quantitative
easing at about 30 percent, a Reuters poll in recent days
showed.
(Editing by Andrea Ricci)
