July 11, 2012 / 6:10 PM / 6 years ago

Glum Fed keeping easing options open, minutes show

The Federal Reserve building is seen in Washington June 19, 2012. REUTERS/Yuri Gripas

WASHINGTON (Reuters) - The Federal Reserve is open to the possibility of buying more bonds to stimulate the economy, but conditions might need to worsen for a consensus to build, minutes from the central bank’s June meeting released on Wednesday showed.

The Fed in June decided to expand its latest effort to keep long-term rates low, announcing that it would buy an additional $267 billion in long-term bonds with proceeds from short-term notes.

Even given that modest step, many economists expect the U.S. central bank to ease monetary policy further by eventually launching a third round of outright bond purchases that would actually increase the size of the central bank’s $2.9 trillion balance sheet.

The minutes of the June 19-20 meeting showed a few officials on the policy-setting Federal Open Market Committee thought the recent weakening in the economy was sufficient to justify bolder action. But the report suggested a majority was not yet on board - at least not before last week’s employment report, which showed a paltry 80,000 new jobs were created in June.

“Several (members) noted that additional policy action could be warranted if the economic recovery were to lose momentum, if the downside risks to the forecast became sufficiently pronounced, or if inflation seemed likely to run persistently below the committee’s longer-run objective” of 2 percent, the minutes said.

The U.S. economy grew just 1.9 percent in the first quarter, and many economists expect the recovery’s momentum slowed further in the second quarter. Employment growth dropped to just 75,000 per month in the second quarter, below what is seen as needed to bring down the jobless rate.

The Fed sharply downgraded its forecast for growth in U.S. gross domestic product at the June meeting.

Writing by Pedro da Costa; Edited by Tim Ahmann and Andrea Ricci

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