Fed Minutes: Policymakers Favor Tapering Stimulus This Year

1:07 PM, Aug 21, 2013   |    comments
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Paul Davidson, USA TODAY

Washington, DC -- Federal Reserve policymakers appear to be coalescing around a plan to pare back the central bank's massive stimulus this year and end it in mid-2014, but gave no signal whether the scale-back could begin next month, according Fed meeting minutes.

"Almost all" Fed policymakers said they were "broadly comfortable" with the tentative plan sketched out in June by Fed Chairman Ben Bernanke to taper its bond-buying this year and end it by mid-2014, assuming job growth continues to pick up.

The apparent consensus contrasts with the sharp divisions voiced by Fed officials in the June meeting minutes. At that meeting, about half of policymakers favored ending the bond purchases late this year, while many others wanted to see a further pickup in the labor market.

The Federal Reserve is buying $85 billion a month in Treasury bonds and the mortgage-backed securities to hold down long-term interest rates and spur more purchases of homes, cars and factory equipment.

After its July meeting, the Fed released a statement voicing concerns about rising mortgage rates and excessively low inflation, leading some economists to suggest that a reduction in the bond-buying could be delayed beyond September. While the minutes reflect those concerns, they provide no further clarification on when a paring of the purchases could begin.

Fed officials have signaled for months that the bond-buying likely would be scaled back this year and some recently have suggested a reduction in purchases could begin in September, assuming solid economic and labor market data. The comments have driven down stocks and pushed up bond yields.

"A few" policymakers " suggested last month "that it might soon be time to slow some of the pace of the purchases." But Fed officials expressed mixed views about the strength of the job market. Although monthly job gains have averaged about 190,000 this year and the unemployment rate has fallen to 7.4%, the ranks of part-time workers who prefer full-time jobs and discouraged workers who've stopped looking for work have risen, Fed officials noted at the July meeting.

Some analysts also have speculated that the Fed could lower its threshold for considering an increase in near-zero short-term interest rate below a 6.5% unemployment rate-assuming the inflation outlook stays below 2.5%.

"Several" Fed officials "were willing to contemplate" lowering the threshold if additional support for the economy were needed. But a few said such a move could call into ques credibility of the threshold" and undermine their effectiveness.

Economic reports have been mixed lately. Job gains in July slowed 162,000 from an average monthly pace of nearly 200,000 the first six months of the year. And while, retail sales have held up, manufacturing output has been weak.

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