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TheStreet Open House

FOMC Looks Ready to Aid Sluggish Economy

WASHINGTON ( TheStreet -- Noting that the pace of economic growth has slowed in recent months, members of the Federal Open Market Committee appeared ready to move ahead with additional stimulus measures, according to minutes from its last policy-setting meeting on Sept. 21.

Peter Cardillo, chief market economist at Avalon Partners, believes that additional quantitative easing measures will almost certainly be announced following the FOMC's next meeting in early November.

"It's not a question of 'if' or 'when' but of 'how much' -- will it be $500 billion or in excess of a trillion? The Fed already spent a trillion in 2009 and it really didn't have much of an impact -- so how much is really needed?" Cardillo asked.

Stocks turned positive on the news although the Dow Jones Industrial Average was most recently shedding 9 points, or 0.08%, to 11,001. The S&P 500 was ahead by nearly a point, or 0.08%, at 1166 and the Nasdaq was gaining 9 points, or 0.4%, to 2411.

"I think this will continue to fuel investors' appetites for equities because interest rates will stay very low and maybe even inch lower," Cardillo said.

At the September meeting, FOMC members lowered their outlook for economic activity in the second half of 2010 and slightly downgraded the 2011 growth forecast. Members, however, still anticipate mild expansion next year and see stronger growth in 2012. Meanwhile, continued expectations for economic slack were seen as likely to drag on core inflation in 2011. Furthermore, inflation isn't anticipated to show much improvement in 2012.

Committee members agreed that a double-dip recession is unlikely although they also voiced concern that "continued high levels of slack left the economy exposed to potential negative shocks."

High unemployment remains particularly problematic, according to meeting participants, because current job growth is so weak that it isn't likely to make a significant reduction in joblessness at a sufficient pace.

Regarding further stimulus action: "Many participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate or if inflation continued to come in below levels consistent with the FOMC's dual mandate, it would be appropriate to provide additional monetary policy accommodation." Others, however, felt further easing would only be necessary if the "outlook worsened and the odds of deflation increased materially."

The minutes said members weighed several easing options but discussion centered on purchases of longer-term Treasury securities and measures to help inflation expectations.

-- Written by Melinda Peer in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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