Fed officials saw risk Aug decision would send wrong signals

August 31, 2010 by · Leave a Comment
Filed under: Policy News 

The recovery is finally running out of steam and we are having to face some tough decisions that we have been putting off since we collectively (sort of) chose to bailout the largest banks and backstop real estate.  Now that the Federal Stimulus is running out we are seeing all the indicators declining that would point to a recovery.  The Fed is going to resume asset purchases including MBS and U.S. Treasuries.

The FOMC mentioned that further shocks will slow growth, any slower than the 1.6% GDP growth will start to go back into recession.    The Fed is getting ready to ramp up more credit creation to try and get some positive inflation.  This will only work until they stop doing it.  We lack income to support the debt in the system so we need to see many more defaults of this bad debt or higher paying jobs need to come back to the U.S. so people can afford their debt load.  Until our officials figure out that outsourcing higher paying jobs, dumping cheap goods on the U.S. and running a debt/growth based money system do not work.

Bloomberg – Some Federal Reserve officials were concerned last month that a decision to stop their securities holdings from shrinking would send the wrong signal that the central bank was ready to resume large-scale asset purchases, minutes of the Aug. 10 meeting showed.

Also, a few policy makers said the economic effects of the decision “likely would be quite small,” the Fed’s Open Market Committee said in a report today in Washington. At the same time, some officials saw “increased downside risks to the outlook for both growth and inflation” and voiced concern that further shocks would cause “significant slowing in growth.”

The debate shows the challenge Fed Chairman Ben S. Bernanke may face in achieving consensus for any additional monetary stimulus to reverse a slowdown in growth and reduce joblessness more quickly. Policy makers haven’t agreed on “specific criteria or triggers for further action,” Bernanke said in a speech last week.

“A few members worried that reinvesting principal from agency debt and MBS in Treasury securities could send an inappropriate signal to investors about the Committee’s readiness to resume large-scale asset purchases,” the Fed said in the report, referring to mortgage-backed securities.


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