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05/21/2014 13:01

By Pedro Nicolaci da Costa
Minutes of the Federal Reserve’s April 29-30 meeting showed policy makers are still hoping for stronger economic growth in the second half of the year. The economic assessment of Federal Open Market Committee participants emphasizes the central bank is so far sticking to its forecasts.
Here are some key excerpts, with quotes in italics:
“In their discussion of the economic situation and the outlook, meeting participants generally indicated that their assessment of the economic outlook had not changed materially since the March meeting. Severe winter weather had contributed to a sharp slowing in activity during the first quarter, but recent indicators pointed to a rebound and suggested that the economy had returned to a trajectory of moderate growth.”
However, that passage is quickly peppered with a note of caution:
“Some participants remarked that it was it was too early to confirm that the bounceback in economic activity would put the economy on a path of sustained above-trend economic growth. In general, participants continued to view the risks to the outlook for the economy and the labor market as nearly balanced. However, a number of participants pointed to possible sources of downside risk to growth, including a persistent slowdown in the housing sector or potential international developments, such as a further slowing of growth in China or an increase in geopolitical tensions regarding Russia and Ukraine.”
In addition, officials seem to have spent quite a bit of time discussing a flagging housing sector, which is key to the economic recovery from the Fed’s perspective.
“Most participants commented on the continuing weakness in housing activity. They saw a range of factors affecting the housing market, including higher home prices, construction bottlenecks stemming from a scarcity of labor and harsh winter weather, input cost pressures, or a shortage in the supply of available lots.”
On the policy front, there was agreement about reducing the pace of monthly bond purchases further in incremental, $10 billion steps. The Fed also had an extensive discussion about its plans for exiting its extraordinary low-interest rate policies. The strategy is still evolving as policy makers assess which tools might work best when the time comes to begin tightening monetary policy.
“Participants considered how various combinations of tools could have different implications for the degree of control over short-term interest rates, for the Federal Reserve’s balance sheet and remittances to the Treasury, for the functioning of the federal funds market, and for financial stability in both normal times and in periods of stress. Because the Federal Reserve has not previously tightened the stance of policy while holding a large balance sheet, most participants judged that the Committee should consider a range of options and be prepared to adjust the mix of its policy tools as warranted. Participants generally favored the further testing of various tools, including the [Term Deposit Facility], to better assess their operational readiness and effectiveness.”
And, there’s more where that came from:
“No decisions regarding policy normalization were taken; participants requested additional analysis from the staff and agreed that it would be helpful to continue to review these issues at upcoming meetings.”

More at The Wall Street Journal’s Real Time Economics blog,http://blogs.wsj.com/economics/