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Blunt words from the Fed on stimulus

Blunt words from the Fed on stimulus
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In unusually blunt wording the Federal Reserve has said more monetary stimulus measures are “likely to be warranted fairly soon” unless the US economy improves considerably.

That statement was contained in the just released minutes of the central bank’s August policy meeting.

The idea that the Fed would print more money to buy government bonds pushed down the value of the dollar and boosted Wall Street on Wednesday, though the effect did not last on Thursday.

The US economy remains moribund, though there were some small signs of growth recently with a stronger-than-expected rise in jobs in July and retail sales rising for the first time in four months.

Demand climbed for goods ranging from cars to electronics, a sign that consumers could drive faster economic growth in the third quarter.

The minutes showed the central bank is actively considering a “flexible” bond-buying programme, which suggests it may not announce an up front amount to purchase, as it did in the past.

“A move to an open-ended policy stance would be a important and powerful shift in the implementation of Fed policy; it would, in effect, say that the Fed is in motion until the data tell it to stop,” Michael Gapen, at Barclays Bank in New York, wrote in a research note to clients.

Fed officials saw significant risks to an already weak US economy, which grew at a sluggish 1.5 percent annual rate in the second quarter. The risks include a worsening of Europe’s financial problems and looming US budget cuts and tax hikes, which have become commonly known as the fiscal cliff.

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