Fed signals next move could come soon

By Chris Isidore, senior writer


NEW YORK (CNNMoney.com) -- The Federal Reserve appears ready to take additional steps soon to try to jump start the economy, but there is sharp disagreement among policymakers on the best course of action.

Minutes of its Sept. 21 meeting of the Federal Open Market Committee appeared to lay the groundwork to take action, possibly as soon as its next meeting on Nov. 2 and 3.

"Several members noted that unless the pace of economic recovery strengthened or underlying inflation [rose] ....they would consider it appropriate to take action soon," according to the minutes.

But it is also clear that there is not unanimity among the policymakers. While some felt that the continued sluggish growth of the current recovery justified action, others said they would support such a move only if "the outlook worsened and the odds of deflation increased materially."

The central bank can no longer employ its usual tool to bolster the economy -- lower interest rates -- since the fed funds rate is already near 0%, and has been since December 2008.

But the Fed could resume purchases of assets such as long-term Treasurys, a policy known as quantitative easing, which would pump money into the economy and indirectly lower some other rates, such as fixed-rate mortgages and corporate bonds.

Ultimately, the committee voted to keep interest rates near 0%, and to continue to reinvest proceeds from maturing mortgage securities into new Treasurys, a subtle move toward more quantitative easing.

Despite the debate among Fed members, only one member, Kansas City Fed President Thomas Hoenig, formally dissented against the the action.

Experts believe the minutes point to a vote for more asset purchases -- perhaps as much as $500 billion -- announced at the next meeting.

"If this is the direction that [Chairman Ben] Bernanke wants to move, I think he's clearly got the votes," said Keith Hembre, chief economist First American Funds.

But even if there are enough votes for further asset purchases, the dissent among the Fed could keep it from taking really bold steps.

"While the question of 'when' has now been largely settled, the 'how' and the 'why' are still very much up in the air," said Paul Ashworth, senior U.S. economist at Capital Economics.

"The Fed will buy Treasury securities, but in what amount, for how long or until what economic goal is met is unclear," said Ashworth.

The Fed said its staff lowered its projection for economic growth over the second half of 2010, and also reduced slightly its estimate for growth next year, although the exact details of those forecasts were not revealed.

But even with that more bearish outlook, the Fed is not expecting the economy to fall into another recession.

The Fed statement released after the Sept. 21 meeting said the U.S. economic recovery continued to lose steam, and that the Fed was willing to take action as needed to spur the economy.

But while that language was a departure for a central bank more used to fighting inflation than feeding it, it did not announce any new policy steps at that time. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,399.67 19.26 0.12%
Nasdaq 4,316.07 57.64 1.35%
S&P 500 1,904.01 17.25 0.91%
Treasuries 2.18 -0.02 -0.82%
Data as of 6:55am ET
Company Price Change % Change
Apple Inc 99.76 2.09 2.14%
Bank of America Corp... 16.26 0.05 0.31%
Pfizer Inc 27.93 0.10 0.36%
Facebook Inc 76.95 1.00 1.32%
Microsoft Corp 44.08 0.45 1.03%
Data as of Oct 20

Sections

Better-than-expected iPhone sales and record Mac sales lifted Apple in its fiscal fourth quarter. More

China's economy has clocked its worst quarter in more than five years, raising concerns over Beijing's ability to meet its own annual growth target. More

In three years, all Chicago high school students will have to take a coding course in order to graduate. More

Host a furniture market. Here's how small town High Point, N.C. rakes in this much money -- twice a year. More

Detroit has 80,000 dilapidated properties and 100,000 empty lots. It's trying to get more people like Antjuan Wyatt to buy them. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.