This excerpt is from an article posted on Harvey's site by Tyler Durden (Zero Hedge):
Highlights from the FOMC minutes:
We came this close to QE3:
- Some participants noted that additional asset purchases could be used to provide more accommodation by lowering longer-term interest rates.
- Others suggested that increasing the average maturity of the System’s portfolio—perhaps by selling securities with relatively short remaining maturities and purchasing securities with relatively long remaining maturities—could have a similar effect onlonger-term interest rates.
- A few participants noted that a reduction in the interest rate paid on excess reserve balances could also be helpful in easingfinancial conditions.
- A few members felt that recent economic developments justified a more substantial move at this meeting, but they were willing to accept the stronger forward guidance as a step in the direction of additional accommodation. Three members dissented because they preferred to retain the forward guidance language employed in the June statement.
Yet this stopped them:
- In contrast, some participants judged that none of the tools available to the Committee would likely do much to promote a faster economic recovery, either because the headwinds that the economy faced would unwind only gradually and that process could not be accelerated with monetary policy or because recent events had significantly lowered the path of potential output. Consequently, these participants thought that providing additional stimulus at this time would risk boosting inflation without providing a significant gain in output or employment.
On "transitory" commodity prices:
- Transitory factors, including supply chain disruptions from the earthquake in Japan and a surge in energy and other commodity prices, had pushed up both headline and core measures of inflation for a time.
- More recently, however, as prices of energy and some commodities have declined from their earlier peaks, headline inflation has moderated.
- Participants generally noted that, with apparently significant slack in labor and product markets, slow wage growth, and little evidence of pricing power among firms, inflation was likely to decline somewhat over time.
On September 21:
- Participants noted that devoting additional time to discussion of the possible costs and benefits of various potential tools would be useful, and they agreed that the September meeting should be extended to two days in order to provide more time.
And why the conclusion at this point is foregone:
- Many participants pointed to the recent downward revision to estimates of economic activity over the past three years, and some to the financial market strains seen during the intermeeting period, as contributing to a downgrade of the outlook for the economy. Moreover, many participants saw increased downside risks to the outlook for economic growth.
- Meeting participants generally noted that overall labor market conditions had deteriorated in recent months.
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