US Fed unveils November minutes

| November 24, 2010

The minutes of the 2-3 November Federal Open Market Committee meeting, the Fed’s policy-setting arm, has revealed that the decision to restart its stimulus programme was almost unanimous - Thomas Hoenig of the Kansas City Federal Reserve Bank was the only member who opposed the move.

The measures, introduced to stimulate the economic recovery, will see the bank buy up Treasury debt at a rate of $75 billion a month – a policy which has been branded “QE2“ (quantitative easing).

However, the move was widely criticised by several other nations, including Germany, China and South Africa.

Germany described the US monetary policy as “clueless” and said they would create “extra problems for the world”, while Brazil said the fresh round of stimulus would not boost production or create jobs in the US, but would instead drive money into countries with higher interest rates and cause inflation.

The minutes suggested that the measures were, in part, an insurance policy against the risk of further disinflation.

The minutes said: “A few participants expected that continuing resource slack would lead to some further disinflation in coming years.

“However, a few others thought that the exceptionally accommodative stance of monetary policy, coupled with rising prices of energy and other commodities … made it more likely that inflation would increase.”

In the meantime, the Fed revised its growth forecast for the world’s largest economy. It now expects growth of 3-3.6% in 2011 - lower than its previous estimate of 3.5-4.2%.

It is also predicting higher unemployment and lower inflation.

Yesterday, the Commerce Department revealed the US economy grew by 2.5% in the July to September period – much faster than the 2% previously estimated and higher than economists had forecast.

Today’s estimate is the second reading, a third and final estimate will be available next month.

GDP was revised upwards due to higher consumer spending and business investment. However, despite the upward revision, unemployment remains stubbornly high and is hovering near the double digit mark.

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