Ben Bernanke, FOMC September minutesThe key theme in the minutes from the Fed Open Market Committee's Sept. 20-21 meeting: Officials indicated that a second round of quantitative easing may be needed "before long," but they delayed any moves in September to collect more data and determine how to best to communicate the policy.

A continued, sluggish job market and tepid second-quarter U.S. GDP growth of 1.7% has increased institutional investors' speculation that the Federal Reserve will start a second round of asset purchases, or quantitative easing, the so-called QE2'

The FOMC officials focused on buying U.S. Treasurys and boosting inflation expectations as ways to increase stimulus, the minutes indicated.

"Many participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate or if inflation continued to come in below levels consistent with the FOMC's dual mandate, it would be appropriate to provide additional monetary policy accommodation," the minutes said.

Debate Over Asset Purchases' Effectiveness

However, the minutes added that some Fed officials said the economic benefits of additional asset purchases "could be small in current circumstance," with some some policymakers noting that they thought "additional accommodation would be warranted only if the outlook worsened and the odds of deflation increased materially."

The minutes didn't mention a specific GDP growth forecast, but they noted that Fed economists lowered their U.S. growth forecast for the third straight meeting in September. The Fed now expects the economy to grow at a slower pace in second half of 2010 and in 2011 than it previously forecast.

FOMC members "generally agreed that the incoming data indicated that output and employment were increasing only slowly and at rates well below those recorded earlier in the year," the minutes said. Policymakers viewed recent data on business and household spending as "mixed," adding that residential construction and home sales were "very weak."

"Nevertheless, participants judged the economic recovery to be continuing and generally expected growth to pick up gradually next year," the minutes said.

Investors responded slightly favorably to the latest Fed minutes. The Dow Jones Industrial Average, down about 40 points at 10,970 prior to their release, reversed and erased its loss, trading at 11,014 shortly after the announcement.

"A Very Risky Strategy"

The release of the Fed's minutes occur on a day when Kansas City Fed President Thomas Hoenig reiterated his opposition to another stage of Fed asset buying, calling quantitative easing a "very risky strategy."

"Not knowing what the outcome might be makes quantitative easing a very risky strategy," Hoenig said, in a speech Tuesday at the annual meeting of the National Association foe Business Economics (NABE) in Denver. "It amounts to attempting to fine-tune inflation expectations -- a variable we cannot precisely or accurately measure -- over the next decade."

Hoenig said increasing the Fed's balance sheet by another $500 billion to $1 trillion over the next year, and perhaps keeping the balance sheet at $3 trillion for the next several years, "risks undermining the public's confidence in the Fed's commitment to long-run price stability, a key element of its mandate." Hoenig has dissented in all seven Fed meetings held this year, and he reiterated his recommendation that the Fed raise short-term interest rates and end its "extended period" of low rates.

Ready to Yank the Punchbowl

On Oct. 11, Fed Vice Chairman Janet Yellen, in her first public remarks as the central bank's vice chair, said low interest rates also contain risks for the financial system and the economy. "It is conceivable that accommodative monetary policy could provide tinder for a buildup of leverage and excessive risk-taking in the financial system," Yellen said in a speech at the Denver NABE meeting.

"Our goal should be to deploy an enhanced arsenal of regulatory tools to address systemic risk," said Yellen, who was San Francisco Fed president prior to her becoming vice chair in place of Donald Kohn, who retired. "We need macroprudential policymakers ready to take away the punch bowl when the party is getting out of hand," Yellen added.

Yellen said the Fed is aware that market players won't be overjoyed when the Fed determines that limits and/or risk reduction is needed.

"We know that market participants won't take kindly when limits are set precisely in those markets that are most exuberant, the ones in which they are making big money," Yellen said. Despite that reality, "discretionary interventions will inevitably play a part in macropruential supervision," she added

In sum, the September minutes show a Fed that's keenly aware of both the nation's inadequate GDP growth rate and insufficient job growth, but it also wants to give the world's largest economy more time -- one more FOMC meeting -- to display signs of increased commercial activity before deploying more quantitative easing.

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Losing interest in this nonsense... Middle America will have to pick up a rifle go to war with Asia or put on kneepads and be debt serfs. Considering previous mismanagement...nothing is assured in a "we ain't gonna pay" war. The Tea Party looks better because they are not elite least Middle America will be represented and maybe even strengthened as a result.

October 12 2010 at 8:46 PM Report abuse +1 rate up rate down Reply

Gold, well said and documented from experience. Question is, how much time will it take for the ignorant to become educated? Kudos to you!

October 12 2010 at 8:34 PM Report abuse +1 rate up rate down Reply
1 reply to Jen's comment

What a con job the Fed has perpetrated. The Fed can't solve the problem because the Fed IS the problem. The Feds "Quantitative Easing" is really just creating money out of thin air (more debt, more inflation)and the Fed then gives this money to the banks interest free. The banks won't lend money to people or small business, and why would they when: 1. They can buy government bonds with a guaranteed 2% profit, and 2. the banks know the day of reckoning is coming whey all these fraudulent mortgages go belly up. The problem is, it won't work. As long as the biggest source of wealth in America (our homes and commercial property) continues to lose value, we will have deflation and growing unemployment. The Fed is just putting a bandaid on fatal wound to get us past the election, so that we won't vote all of the incumbents out. We need to AUDIT THE FED, and return to a sound money system.

October 12 2010 at 8:01 PM Report abuse +2 rate up rate down Reply
Robert & Lisa

The growing horror of our country's debt.

October 12 2010 at 6:04 PM Report abuse +2 rate up rate down Reply
1 reply to Robert & Lisa's comment

Here’s the narrative you hear everywhere: President Obama has presided over a huge expansion of government, but unemployment has remained high. And this proves that government spending can’t create jobs. Here’s what you need to know: The whole story is a myth. There never was a big expansion of government spending. In fact, that has been the key problem with economic policy in the Obama years: we never had the kind of fiscal expansion that might have created the millions of jobs we need. Read more:

October 12 2010 at 6:19 PM Report abuse -2 rate up rate down Reply
Cactus Pete

The growing horror of wall street.

October 12 2010 at 5:16 PM Report abuse rate up rate down Reply

Yellen said the Fed is aware that market players won't be overjoyed when the Fed determines that limits and/or risk reduction is needed. Boo hoo hoo....let me hand the thieves of wallstreet a crying towel!!!!!!!!!!!!!!! Compliments of mainstreet!

October 12 2010 at 4:40 PM Report abuse +1 rate up rate down Reply

Yellen said the Fed is aware that market players won't be overjoyed when the Fed determines that limits and/or risk reduction is needed. Boo hoo hoo....let me hand the thieves of wallstreet a crying towel!!!!!!!!!!!!!!! Compliments of mainstreet!

October 12 2010 at 4:40 PM Report abuse rate up rate down Reply

YOU are the Economy. Yes___YOU__ You The Consumers are the nations economy. ONLY YOU can create jobs by buying products made inside the USA. Having more money in your pockets to spend does not help the USA or our economy___IF you spend your money on buying Imported products. When YOU buy imported products YOU are giving away USA jobs and our nation's wealth and creating jobs and wealth in foreign countries. Face reality___YOU cannot buy imported shirts, slacks, jeans, appliances, TV's, Computers, cars, cell phones, tires, ham, cheeses, wine, beer etc., etc., etc. and then expect to find a job inside the USA. The sooner YOU wake up and realize that___the sooner our economy will start improving. Look at the label to see where everything you buy is made. Colgate toothpaste is made in Mexico. So why buy Colgate when you can buy other brands that are made in the USA for example. Sylvannia and GE light bulbs are made in China___yet there are still no brand name light bulbs made in the USA. YOU have to look at the packages to see where everything you buy is made___IF you want to create jobs in the USA.

October 12 2010 at 4:35 PM Report abuse +3 rate up rate down Reply

"Quantitative Easing" is Greek for "PRINT MORE MONEY"! If the economy is still mulling along after Uncle Sam shoveled a TRILLION DOLLARS of $20 Bills out the helicopter window over every large city in America, how will we ever get it off of this fake Government-Cocaine-Fueled environment. The American Economy has become addicted to Government BAILOUTS.. the Housing CREDIT, CASH for Clunkers, ENERGY CREDITS, ZERO-Interest MONEY for BIG BANKS, the FED buying their own Treasury Bills to make them look like "Best Sellers", and on and on. We are living in a totally falsified Economy. We will never be able to get America off this Government-fueled Cocaine Economic high... that is, until it all unravels.

October 12 2010 at 4:19 PM Report abuse +3 rate up rate down Reply

they do not want to stimulate the economy, the socialist/marxist agenda needs to keep people starving and looking for help from the government. just remember the socialist agenda is spend until WE run out of money.....if they would have raised the interest rate to 3% our money would have value and our wealth would increase and let the american way take its course, we will not fail if the let us be americans and let the people work there way out-------REMEMBER IN NOVEMBER

October 12 2010 at 3:48 PM Report abuse +7 rate up rate down Reply