The Minutes of the August FOMC meeting were more dovish than generally expected and showed a strong inclination towards more stimulus.
The following phrase summarizes it nicely: “ Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of recovery”. This is a very strong worded statement that put the hurdle to eventually change course and not ease policy very high. Yes, the latest payrolls numbers were better and the July retail sales were strong, but that seems still insufficient to satisfy the above mentioned conditions to change course and keep policy unchanged. Of course some more key reports will be published ahead of the September 13 FOMC meeting, but it is unlikely that these will all be cast-iron. So already today the manufacturing PMI may disappoint (if the Chinese PMI is a good precursor).
Besides the heightened economic concerns and the communication strategy, the FOMC also discussed the various tools that might be used to ease policy. Recently, there were doubts whether the FOMC still liked the asset buying as much as before, but the Minutes showed that the Committee is still leaning towards its use.
“Many participants expected that such (QE) programme could provide additional support for the economic recovery both by putting downward pressure on longer-term interest rates and by contributing to easier financial conditions more broadly. ” However, there may be operational changes as “many participants thought that any new programme should be sufficiently flexible to allow adjustments.”. So, there might be QE without fixed duration, nor predetermined amounts of purchases. A couple of participants also raised the idea of cutting rates on the excess reserves (IOER) but several governors raised concerns for its effects on money markets. There was also interest for the BOE’s funding for lending scheme.