washington 08 23, 2012, 00:50 IST
The U.S. Federal Reserve is likely to deliver another round of monetary stimulus "fairly soon" unless the economy improves considerably, minutes from the central bank's August meeting show.
While the meeting was held before a recent improvement in economic data, including a stronger-than-expected July reading for U.S. employment, policymakers were pretty categorical about their dissatisfaction with the current outlook.
"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery," the Fed said in minutes to its July 31-August 1 meeting.
U.S. stock prices briefly pared losses after the report was released while Treasury bond prices extended their rally.
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Some officials raised concerns about whether the Fed's presence in the markets for Treasury and mortgage-backed securities, but others agreed with staff analysis showing "substantial capacity" for buying new assets.
The Fed held policy steady at that gathering, but signaled a renewed readiness to act amid lingering softness in the economy. The minutes showed the central bank is actively considering a "flexible" bond-buying program, which could suggest that no upfront amount will be announced.
Fed officials saw significant risks to an already weak U.S. economy, which grew at a sluggish 1.5 percent annual rate in the second quarter. The risks include a worsening of Europe's financial strains and the looming U.S. budget cuts and tax hikes, which have become commonly known as a fiscal cliff.
Many Fed officials supported pushing back the likely timing of an eventual interest rate hike, which the Fed currently sets at late 2014. But they decided to defer the decision to the Fed's September 12-13 meeting, when the central bank will release a new round of economic forecasts.
A few central bankers thought it might be a good idea to replace such language with guidance directly linked to economic factors, as has been proposed by Chicago Fed President Charles Evans.
Officials also actively debated and tested the possibility of developing a consensus Fed forecast.
A couple of policymakers favored lowering the rate the Fed pays banks to park their excess reserves at the central bank, currently at 0.25 percent. But several participants worried that money market funds could run into trouble if their returns are crimped further.
(Editing by Neil Stempleman and Chizu Nomiyama)