Fed Officials Divided on Further Stimulus
Comment of the Day

July 12 2011

Commentary by David Fuller

Fed Officials Divided on Further Stimulus

Here is the dilemma, reported in the opening for this article from Bloomberg:
Federal Reserve policy makers disagreed on whether additional monetary stimulus will be needed even if the outlook for economic growth remains weak, minutes of their meeting last month showed.

"A few members noted that, depending on how economic conditions evolve, the committee might have to consider providing additional monetary stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run," the Federal Open Market Committee said in the minutes of its June 21-22 meeting, released today in Washington.

"On the other hand, a few members viewed the increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant" the FOMC "taking steps to begin removing policy accommodation sooner than currently anticipated."

David Fuller's view This is a stagflation problem.

The stagnating portion is GDP growth in the USA as consumers are understandably reducing debt and doubly cautious with house prices remaining weak and unemployment high. The Federal and State governments are also under pressure to reduce debt. Corporations are reluctant to hire and spend because the economy is soft, and rightly or wrongly, they do not like employment and tax legislation that has already been passed or is still in the pipeline.

The inflation portion of stagflation comes mainly from commodity prices, not least for food and energy.

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