Fed: More Job Growth Needed to Taper Bonds
Federal Reserve officials seem far from a consensus on the question that’s consumed investors for months: When will the Fed slow its bond purchases, which have fueled spending, supported economic growth, driven up stocks and kept mortgage rates near record lows?
According to the Associated Press, minutes of their June policy meeting show many members felt the job market’s improvement would have to be sustained before the Fed would scale back its bond purchases. And many thought the purchases should extend into 2014, according to a summary of economic forecasts that are released with the minutes.
Still, several thought a slowdown in purchases could occur soon. And one faction favored a more aggressive timetable: About half the “participants” favored ending the bond purchases late this year — several months earlier than Chairman Ben Bernanke has indicated, according to the summary of forecasts, which is prepared before the Fed’s policy discussion.
Participants include both voting and non-voting members of the Fed’s policy committee.
The divisions revealed Wednesday by the minutes reflect the difficulty investors have had deciphering the Fed’s intentions. Bernanke has carved out a measured stance: At a news conference after last month’s meeting, he said the Fed would likely slow its bond purchases later this year and end them around mid-2014 if the economy continued to strengthen.
Most investors and analysts interpreted his remarks to mean the Fed would likely announce after its September meeting that it will scale back its bond buying.
Many Fed officials side with Bernanke’s approach. But the minutes were a reminder that some officials feel Bernanke’s timetable for slowing the bond buying is too cautious.
Some analysts think the Fed, in the end, will back the chairman’s notion of slowing the purchases later this year— if the outlook for the economy continues to strengthen.
The minutes suggest that a slowdown in the bond buying in September “is not quite a done deal,” said Michael Hanson, U.S. economist at Bank of America Merrill Lynch. “For a taper in September, we may still need to see some more improvement in the economy.”