July 11 (Bloomberg) -- A few Federal Reserve policy makers said the central bank will probably need to take further action to boost the labor market and meet its inflation target, according to minutes of their June meeting.
“A few members expressed the view that further policy stimulus likely would be necessary to promote satisfactory growth in employment and to ensure that the inflation rate would be at the Committee’s goal,” according to the record of the Federal Open Market Committee’s June 19-20 gathering released today in Washington.
The minutes show two participants said additional bond purchases are appropriate, while two others said they would be warranted in the absence of “satisfactory progress” in cutting unemployment or if downside risks increase. FOMC members also said strains in global markets stemming from Europe’s debt crisis had increased since their April meeting, and that “U.S. fiscal policy would be more contractionary than anticipated.”
The committee last month extended through 2012 its Operation Twist program to lengthen the maturities of assets on its balance sheet in a bid to reduce long-term borrowing costs. Chairman Ben S. Bernanke said after the meeting that policy makers are prepared to “take additional steps” if the labor market fails to improve.
The minutes also show policy makers considering the risk that further easing might pose. Some members of the committee noted that excessive purchase of Treasuries could “at some point, lead to deterioration in the functioning of the Treasury securities market that could undermine the intended effects of the policy.”
Members agreed the risk of such a deterioration was “low at present” and would be outweighed by the benefits of extending the Operation Twist program.
In their discussion of policy, a few members said it would be “helpful to have a better understanding” of how large purchases would have to be to disrupt the Treasury market.
Participants at the meeting said financial conditions had become less supportive of the economy as investors’ concerns about the euro region’s sovereign-debt and banking crisis increased. Policy makers said that strains in Europe could spill over into the U.S. and “noted the importance of undertaking adequate preparations to address such spillovers if they were to occur.”
The FOMC met before a Labor Department report last week showing that companies hired 80,000 workers in June, fewer than forecast, and the unemployment rate held at 8.2 percent for a second month. Growth in private employment, which excludes government agencies, was the weakest in 10 months.