WASHINGTON — Some Federal Reserve officials pushed in August for a more aggressive response to the economy’s slowdown. They settled for a plan to keep rates near zero for another two years and won agreement to discuss more options at an extended meeting in September.
Minutes of the Aug. 9 policy meeting released Tuesday show that Fed officials discussed a range of actions, including another round of Treasury bond purchases. Some Fed officials said a weaker economy called for such a step.
Fed officials in the end said they planned to keep rates low until at least mid-2013, assuming the economy remained weak. They also added a second day to their September meeting. That raised speculation that the Fed would announce some further action after that meeting.
Three Fed members opposed any steps for fear they could ignite inflation. The 7-3 vote after the meeting marked the first time in nearly 20 years that at least three members dissented from a Fed statement.
Stocks rose modestly after the minutes were released. The Dow Jones industrial average closed up 20 points for the day. Broader indexes also gained.
The minutes show Fed officials discussed the two-year plan to keep interest rates near zero, a third round of bond purchases, and shifting the mix of the Fed’s holdings into long-term Treasury securities. Some members also raised the idea of tying record-low interest rates to a level of unemployment or inflation, instead of the set time period.
The bond purchases are intended to keep long-term rates low and aid the economy. The second round of bond purchases, announced last year, sparked a 28 percent rally in the Dow through April 29.
Charles Evans, the president of the Federal Reserve Bank of Chicago, said Tuesday that he was one of the Fed officials who favored more aggressive policy actions. He was also one of the seven officials who supported the two-year plan for keeping rates near zero.
“Strong accommodation needs to be in place for a substantial period of time,” Evans said.
Analysts have speculated that such a high level of dissent makes it harder for Fed Chairman Ben Bernanke to rally support for more action. Others say the August vote shows Bernanke is willing to press forward, even with a divided board.
And at least one of the dissenters may be softening his opposition. Narayana Kocherlakota, president of Federal Reserve Bank of Minneapolis, said Tuesday that he would not seek to overturn the August decision at future meetings. He said such a move would undercut the Fed’s ability to take similar actions in the future.
Investors had hoped Bernanke would provide details of the Fed’s next moves during a highly anticipated speech in Jackson Hole, Wyo. But Bernanke offered no new steps.
He did say the central bank would extend its September meeting to two days to allow for a fuller discussion. On Tuesday, the minutes show that the board had pushed for the longer meeting.
A turbulent summer has fueled fears that the U.S. is on the verge of another recession. The economy grew at an annual rate of just 0.7 percent in the first six months of this year, the weakest performance since the recession ended two years ago.
A key question is whether consumers and business owners will continue to pull back on spending this fall.
