FOMC: High unemployment, limited construction continue to hinder recovery
Federal Reserve officials continue to believe the pace of the economic recovery is too slow to warrant any change in the central bank's approach toward meeting its dual mandate of stable inflation and maximum employment. At its meeting near the end of January, the Federal Open Market Committee voted unanimously to keep the target federal funds rate at next to nothing – 0% to 0.25% – and continue with its controversial $600 billion bond-buying plans. Since first announcing plans to reinvest maturing agency debt and mortgage-backed into longer-term Treasury securities, the Fed has purchased $236 billion of Treasuries, according to the minutes of the latest FOMC meeting. To meet the $600 billion mandate by June, the Fed plans to continue purchasing about $80 billion a month. FOMC members said consumer spending rose slightly in 2010 and the ongoing expansion in business outlays "appeared to have been sustained in recent months." But construction activity remains muted and the unemployment rate is still high despite modest gains in nonfarm payroll jobs. "A few members noted that additional data pointing to a sufficiently strong recovery could make it appropriate to consider reducing the pace or overall size" of the bond purchase program, which has become known as QE2. Although other members said it was doubtful anything would change enough to spur any changes to the quantitative easing prior to its expected completion in about four months, according to the minutes. In early January, Federal Reserve Chairman Ben Bernanke admitted growth in the jobs market is still a few years away, saying he expects a moderately stronger pace in the economic recovery this year. The QE2 plan is "to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with the committee's mandate," according to FOMC minutes. Fed officials expect the housing sector will remain weak, as it did the final few months of 2010 because of weakened demand coupled with an elevated supply of homes and the overhang of foreclosed or distressed properties that continue to weigh down prices. Now that Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, has rolled off the committee as a voting member, all the votes of last month's meeting were unanimously approved. Hoenig cast the lone dissenting vote at every FOMC meeting in 2010. He believes the high level of monetary accommodation increases the risk of economic and financial imbalances. He also doesn't think the benefits of the QE2 outweigh costs. The FOMC meets again March 15. Write to Jason Philyaw.