FOMC minutes for the March meeting indicated that policymakers were divided on whether to begin exiting monetary stimulus this year...
FOMC minutes for the March meeting indicated that policymakers were divided on whether to begin exiting monetary stimulus this year. While the economic outlook over the medium-term was largely unchanged from the projections published in January, the staff revised up its projection for consumer price inflation in the near-term, largely driven by the recent increases in the prices of energy and food. Overall, the consensus is that the rise in headline inflation as temporary but policymakers will put much focus on inflation expectations. If elevated price levels prove to be a long-term issue, they will act on it.
The fed acknowledged that the pace of economic activity appeared to have been a 'little slower' than the staff had anticipated at the time of the January FOMC meeting, and he near-term forecast for growth of real GDP was revised down modestly. However, the 'outlook for economic activity over the medium term was broadly similar' to previous projections with changes to assumptions mostly small and offsetting. For instance, 'crude oil prices had risen sharply and federal fiscal policy seemed likely to be marginally more restrictive than the staff had judged in January, but these negative factors were counterbalanced by higher household net worth and a slightly lower foreign exchange value of the dollar'. Concerning employment, 'the jobless rate was still expected to decline slowly and to remain elevated at the end of 2012'.
Near-term inflation expectations have been revised up, mainly due to the recent increases in energy and food prices. However, the Fed added that the rise in inflation would mostly be 'transitory' if energy and other commodity prices did not rise significantly further in light of 'the projected persistence of slack in labor and product markets and the anticipated stability in long-term inflation expectations'. The Fed did not change the forecast for consumer price inflation over the medium-term.
Policymakers were divided on when to unwind accommodative measures implemented to stimulate growth. As stated in the minutes, several of members indicated the risks to their forecasts of inflation had 'shifted somewhat to the upside'. A few participants agreed that the Committee would 'continue its planning for the eventual exit from the current, exceptionally accommodative stance of monetary policy', However, they believed it was seen as 'prudent to consider possible exit strategies for a range of potential economic outcomes' given 'uncertainty about the economic outlook'. Note also that 'a few participants indicated that economic conditions might warrant a move toward less accommodative monetary policy this year' while 'a few others noted that exceptional policy accommodation could be appropriate beyond 2011'.
Upcoming economic indicators will be crucial for setting the tone of the April meeting. While no one voted against monetary policies in March, diverging comments from both hawks and doves suggested that more dissentients will appear in the April meeting
