casper
11-25-2009, 10:54 AM
Aware of policy risks, Fed sees firmer growth
By Pedro da Costa and Mark Felsenthal
WASHINGTON- Federal Reserve officials are increasingly confident the U.S. economic recovery will be durable, but do not see employment or inflation picking up soon, minutes from their November meeting showed.
Senior Fed officials, meeting on November 3-4, also expressed concern their plans to keep interest rates low for a prolonged period could have negative repercussions, including possible speculative activity in financial markets.
"Most participants now view the risks to their growth forecasts as being roughly balanced rather than tilted to the downside," according to the minutes, which were released on Tuesday and were accompanied by upward revisions to policy makers' growth forecasts.
"Some negative side effects might result from the maintenance of very low short-term interest rates, including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations," they said.
The comments helped U.S. stocks to pare losses.
The Fed cut benchmark interest rates to near zero percent last December and has pumped more than $1 trillion into the economy to beat back a severe recession and restore growth.
After their meeting earlier this month, policy makers repeated a pledge to keep rates exceptionally low for "an extended period."
Many observers, including influential investors and some officials, have argued that the Fed's policy of rock-bottom borrowing costs may be driving investors to lever up their bets by using the falling U.S. dollar to fund their trades.
President Barack Obama, during a recent visit to Asia, was lectured on the subject by top government officials in China.
The Federal Open Market Committee, the U.S. central bank's policy-setting body, said it did not believe such speculative activity had taken place to date, saying the dollar's decline had thus far been "orderly."
"Any tendency for dollar depreciation to intensify or to put significant upward pressure on inflation would bear close watching," the minutes said. The U.S. currency dropped to a 15-month low against a basket of major currencies last week.
Fed Chairman Ben Bernanke devoted an unusually long portion of a speech delivered in New York last week to discussion of the dollar, saying he was keeping an eye on its movements but suggesting it was not an overwhelming influence on policy for now.
NO INFLATION HERE
The minutes indicated policy makers are not widely concerned about inflation in the medium term.
That stance has been evident in a string of recent speeches, in which even the normally hawkish presidents of the Dallas and Philadelphia Federal Reserve banks showed little concern over the prospects for a sustained rise in consumer prices.
By Pedro da Costa and Mark Felsenthal
WASHINGTON- Federal Reserve officials are increasingly confident the U.S. economic recovery will be durable, but do not see employment or inflation picking up soon, minutes from their November meeting showed.
Senior Fed officials, meeting on November 3-4, also expressed concern their plans to keep interest rates low for a prolonged period could have negative repercussions, including possible speculative activity in financial markets.
"Most participants now view the risks to their growth forecasts as being roughly balanced rather than tilted to the downside," according to the minutes, which were released on Tuesday and were accompanied by upward revisions to policy makers' growth forecasts.
"Some negative side effects might result from the maintenance of very low short-term interest rates, including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations," they said.
The comments helped U.S. stocks to pare losses.
The Fed cut benchmark interest rates to near zero percent last December and has pumped more than $1 trillion into the economy to beat back a severe recession and restore growth.
After their meeting earlier this month, policy makers repeated a pledge to keep rates exceptionally low for "an extended period."
Many observers, including influential investors and some officials, have argued that the Fed's policy of rock-bottom borrowing costs may be driving investors to lever up their bets by using the falling U.S. dollar to fund their trades.
President Barack Obama, during a recent visit to Asia, was lectured on the subject by top government officials in China.
The Federal Open Market Committee, the U.S. central bank's policy-setting body, said it did not believe such speculative activity had taken place to date, saying the dollar's decline had thus far been "orderly."
"Any tendency for dollar depreciation to intensify or to put significant upward pressure on inflation would bear close watching," the minutes said. The U.S. currency dropped to a 15-month low against a basket of major currencies last week.
Fed Chairman Ben Bernanke devoted an unusually long portion of a speech delivered in New York last week to discussion of the dollar, saying he was keeping an eye on its movements but suggesting it was not an overwhelming influence on policy for now.
NO INFLATION HERE
The minutes indicated policy makers are not widely concerned about inflation in the medium term.
That stance has been evident in a string of recent speeches, in which even the normally hawkish presidents of the Dallas and Philadelphia Federal Reserve banks showed little concern over the prospects for a sustained rise in consumer prices.