Fed says ‘a number’ on FOMC favored additional QE next year

‘Before Liftoff’

The Fed should give “guidance on the economic conditions that would need to prevail before liftoff of the federal funds rate might be judged appropriate,” Yellen said yesterday in a speech in at the University of California at Berkeley. Yellen, who since June 2011 has led an FOMC subcommittee on communications, said she is “strongly supportive” of such a change.

Fed Chairman Ben S. Bernanke and his policy making colleagues last month affirmed their September decision to buy $40 billion of mortgage-backed securities each month without specifying the total size or duration of the purchases. The FOMC also at the last meeting reiterated that it plans to hold the benchmark interest rate near zero through mid-2015.

FOMC members last month voted 11-1 for the action with only Richmond Fed President Jeffrey Lacker dissenting. Lacker, who has voted against every FOMC decision this year, said in an Oct. 26 statement that he opposed additional bond buying because the effort is ineffective and may speed up inflation.

By Name

All of the Fed’s 12 regional presidents and seven Washington-based governors are participants in meetings of the FOMC. The minutes do not identify participants by name. The FOMC’s last scheduled meeting of this year is set for Dec. 11- 12, when it will release its updated summary of economic projections and Bernanke plans to hold a press conference.

The FOMC includes 12 participants who hold voting power. The governors, the New York Fed president and a rotating group of four of the regional presidents serve as voting members of the committee. This year, the Cleveland, Richmond, Atlanta and San Francisco Fed presidents hold a vote.

In the first round of quantitative easing starting in 2008, the Fed bought $1.25 trillion of mortgage-backed securities, $175 billion of federal agency debt and $300 billion of Treasuries. In the second round, announced in November 2010, the Fed bought $600 billion of Treasuries.

San Francisco Fed President John Williams, who was among the first Fed officials to back open-ended bond buying, told reporters on Nov. 6 that the central bank may need to buy more than $600 billion in bonds by extending QE3 well into next year.

‘Weak Growth’

“It’s still a weak-growth economy,” said Jeffrey Rosenberg, chief investment strategist for fixed income at New York-based BlackRock Inc., the world’s biggest asset manager with $3.67 trillion, before today’s release. “The economy isn’t growing fast enough to increase the pace of job creation.”

The S&P 500 rallied to 1,465.77, the highest close since December 2007, on Sept. 14, a day after the Fed announced QE3. The benchmark U.S. stock gauge rallied 9.3 percent this year before today. Next year it will probably exceed its record of 1,565.15 in October 2007, according to six of seven equity strategists’ estimates compiled by Bloomberg News.

The labor market and housing have shown sign of improvement.

U.S. companies hired more workers than forecast in October, adding 171,000 workers to payrolls after a 148,000 gain in September that was more than first estimated, the Labor Department said Nov. 2. The unemployment rate climbed last month to 7.9 percent from 7.8 percent in September as more people entered the labor force in search of work.

Housing Market

The U.S. housing market has rebounded as mortgage rates driven to record lows by the Fed’s asset buying spur demand. In August the S&P/Case-Shiller index of property values in 20 cities rose 2 percent from August 2011, the biggest year-to-year gain since July 2010. Purchases of new homes rose in September to a two-year high, according to the Commerce Department.

Even so, economists see growth slowing to 2 percent next year from 2.1 percent this year, according to the median of 89 estimates in a Bloomberg survey. The pace is slower than the latest estimate by FOMC participants, who said in September that growth next year will be 2.5 percent to 3 percent in 2013, according to the central tendency forecasts. Those predictions exclude the three highest and three lowest of 19 projections.

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