Economic growth slowed early this year, largely due to the temporary effects of the unusually cold and snowy winter weather, the minutes from the March 18-19 Federal Open Market Committee meeting said.
“Information received since the FOMC met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated,” the minutes said.
“Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable,” it continued.
The committee decided that it would add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and would add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion.
“While making a further measured reduction in its pace of purchases, the committee emphasized that its holdings of longer-term securities were sizable and would still be increasing, which would promote a stronger economic recovery by maintaining downward pressure on longer-term interest rates, supporting mortgage markets, and helping to make broader financial more accommodative,” the minutes stated.
In addition, the committee continues to seek conditions in reserve markets consistent with federal funds trading in a range from 0 to 1⁄4 percent.
Narayana Kocherlakota, Minneapolis Fed president, was the only dissenting vote, saying that a part of the guidance would weaken the credibility of the committee’s commitment to its inflation goal by failing to communicate purposeful steps to more rapidly increase inflation to the 2% target and by suggesting that the committee views inflation persistently below 2% as an acceptable outcome.
“Moreover, he judged that the new guidance would act as a drag on economic activity because it provided little information about the desired rate of progress toward maximum employment and no quantitative measure of what constitutes maximum employment, and thus would generate uncertainty about the extent to which the Committee is willing to use monetary stimulus to foster faster growth,” the minutes said.