US Federal Reserve officials signaled on Wednesday that they might be ready to launch a new bond buying program when they next meet next month.
The goal would be to try to lower long-term interest rates to encourage more borrowing and spending.
Minutes of the July 31-Aug. 1 policy meeting released on Wednesday don’t explicitly say what action the Fed would most likely take.
However, they hint that the central bank is preparing to begin more bond buying.
The minutes show that Fed officials spoke at the meeting with increased urgency about the need to provide more help for the still-weak US economy. Many felt further support would be needed “fairly soon” unless the economy improved significantly.
The Fed has already sought to drive down long-term rates by buying more than US$2 trillion in Treasury bonds and mortgage-backed securities in two previous rounds of bond purchases. The purchases are called “quantitative easing.”
Based on the minutes, David Jones, chief economist at DMJ Advisors, said he thought the likelihood of further quantitative easing had risen from evenly split to as high as a 70 percent chance that the Fed will make that move when it meets on Sept. 12 and Sept. 13.
“I believe the Fed is signaling in very clear terms that a third round of bond purchases will be approved at the September meeting,” Jones said.
In the minutes, the Fed noted, “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.”
Paul Ashworth, chief US economist at Capital Economics, said that wording signaled that the Fed won’t be satisfied by the modest improvements the economy has made recently.
“Quantitative easing is still very much on the table,” Ashworth said.
The minutes also show many officials favor pushing the timetable for any increase in record-low short-term rates beyond the Fed’s current target of late 2014 at the earliest. Some economists think the target will be extended to mid-2015.
The economy grew at a lackluster annual rate of 1.5 percent in the July-September — even slower than the 2 percent growth rate from January through March. Many economists think growth in the second half of this year will remain around 2 percent — too weak to lower the unemployment rate, now at 8.3 percent.
Analysts are looking to a speech by Bernanke on Aug. 31 at an annual Fed conference in Jackson Hole, Wyoming, to provide further guidance on any new actions.
In the view of some analysts, the Fed might still want to put off any major new bond-purchase program so it would have something in reserve in case the economy goes off a “fiscal cliff” at the end of the year. That’s when tax increases and deep spending cuts will take effect unless Congress reaches a budget agreement.
On Wednesday, the Congressional Budget Office warned that if the fiscal crisis remained unresolved all next year, it would probably tip the US economy into a recession. It estimated that the economy would shrink 0.5 percent next year and unemployment would rise to around 9 percent by late next year.