Federal Reserve minutes reveal members' disagreement over tapering of bond purchases
WASHINGTON — 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?
Minutes of their June 18-19 policy meeting released Wednesday show many of the 19 officials felt the job market's gains would have to be sustained before the Fed would scale back its bond purchases, which have helped support spending and growth, lifted stocks and kept mortgage rates near record lows.
Later in the day, Chairman Ben Bernanke stressed that the economy still needs support from the Fed's low-rate policies. Speaking in Cambridge, Mass., to the National Bureau of Economic Research, Bernanke noted that unemployment remains high and that higher taxes and federal spending cuts are weighing on growth.
“A highly accommodative monetary policy for the foreseeable future is what is needed for the U.S. economy,” Bernanke said.
It was his latest effort to emphasize to investors that even after the Fed has begun to slow its bond purchases, it will continue to stimulate the economy.
At the June policy meeting, many Fed officials 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 start soon.
One faction backed an aggressive timetable: According to a summary of economic forecasts released with the minutes, about half the “participants” favored ending the bond purchases late this year — months earlier than Bernanke has indicated. Participants include voting and non-voting officials on the Fed's policy committee.
The minutes suggest that a slowdown in the bond buying in September “is not quite a done deal,” said Michael Hanson, economist at Bank of America Merrill Lynch. “For a taper in September, we may still need to see some more improvement in the economy.”
Yet even the analysts differ. Dana Saporta, an economist at Credit Suisse, said she still thinks the Fed will start pulling back its purchases in September.
The jobs report for June, released Friday, “went at least some way towards satisfying those who were looking for more improvement in labor market conditions,” Saporta said.