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) -- Members of the

Federal Reserve's

policy-setting arm met secretly in October to hash out monetary policy options and acknowledged that additional purchases of long-term securities could devalue the dollar, according to

minutes from the

Federal Open Market Committee's

November meeting .

It was after this two-day meeting that the FOMC announced plans to purchase $600 billion in long-term Treasury securities through the second quarter of 2011 at a pace of roughly $75 billion a month.

The Committee's decision to take action to support the recovery was prompted by the consensus that "progress toward meeting the Committee's dual mandate of maximum employment and price stability

has been disappointingly slow."

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Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, was the only member to deem an increase in the Fed's securities holdings as posing more risks than benefits while most members anticipated that the downward pressure on long-term interest rates would lift asset prices. Some noted that the plan could reduce the foreign exchange value of the dollar.

Concerns that expanding the Fed's asset portfolio along with an increase in excess reserves "could cause an undesirable large increase in inflation" were also voiced. However, the Committee agreed that it had the tools to quickly adjust monetary policy as needed to prevent an unwanted increase in inflation and said it would regularly review the pace of its asset-purchase program in light of its dual mandate.

The $600 billion quantitative easing plan was ultimately seen as providing protection against disinflation and supporting stronger output and employment. The move, however, wasn't expected to meaningfully increase the pace of recovery, which members said was proceeding at a moderate rate.

The minutes also revealed that the FOMC met on Oct. 15 to brainstorm about different ways to express their policy objectives and to communicate policy decisions. During the meeting, Fed officials discussed how smaller, more frequent adjustments to the Fed's intended security holdings made more sense to current circumstances since they could be more easily adjusted to incoming data. Also under discussion was the idea of setting a long-term interest rate target. While some members saw a target as an effective way to lower long-term interest rates, other members noted the significant risks.

"The Federal Reserve might find itself buying undesirably large amounts of the relevant security in order to keep its yield close to the target level" according to the minutes.

Finally, the FOMC downgraded its 2010 GDP growth expectations to between 2.4% and 2.5% from between 3% and 3.5% in June. Members project a mild pickup in the pace of recovery in the coming years with output expected to grow in the range of 3% to 3.6% in 2011.

Improvement in the unemployment level is seen as being even more gradual that forecast in June. In 2010, the unemployment rate is now expected to be in the range of 9.5% to 9.7%, from the previous range of 9.2% to 9.5%


Written by Melinda Peer in New York


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