Fed sees no need to do more for the economy, but keeps its options open
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If investors were hoping for a lot more sympathy from the Federal Reserve about the risks of a weakening economy, they didn’t get it in the minutes of the central bank’s June 22-23 meeting.
The minutes, released Wednesday, indicated that policymakers didn’t see the need for new steps to bolster the economy or the financial system -- even as they trimmed their expectations for 2010 gross domestic product growth.
The central bank’s “central tendency” forecast for U.S. GDP growth this year was reduced to a range of 3% to 3.5% from a range of 3.2% to 3.7% at the Fed’s April meeting.
From the June meeting minutes:
The economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside. Nonetheless, all saw the economic expansion as likely to be strong enough to continue raising resource utilization, albeit more slowly than they had previously anticipated. The changes to the outlook were viewed as relatively modest and as not warranting policy accommodation beyond that already in place.
‘Overall the minutes suggest that the [Fed] clearly sees greater downside risks but that it has not fundamentally altered its core views,’ said Zach Pandl, an economist at Nomura Securities in New York. ‘A significant further deterioration in both growth and inflation would be needed for the committee to seriously consider easing” monetary policy further.
Not surprisingly, Fed officials nodded to the possibility that their minds could change about additional help for the economy.
“Members noted that in addition to continuing to develop and test instruments to exit from the period of unusually accommodative monetary policy, the committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably,” the minutes said.
They could already be thinking differently about the outlook: A number of economic reports have been significantly weaker than expected since the Fed’s last meeting, including the June employment report, June auto sales and Wednesday’s report on total June retail sales.
Financial markets seem to be focusing on the negative in the Fed’s meeting minutes -- i.e., reduced expectations for growth, however modest. The stock market’s morning rally has stalled out, with the Dow Jones industrials off 0.1% to 10,348 with about 10 minutes left in the trading session.
Some investors are running back to Treasury securities. The 10-year T-note yield has fallen to 3.05% from 3.11% on Tuesday.
The DXY index of the dollar’s value against six major currencies is down 0.3% to a new two-month low of 83.37.
-- Tom Petruno