Fed minutes show cautious move towards end of economic stimulus

Released record of Federal Open Market Committee meeting shows mixed optimism and caution on recovery of US economy

theguardian.com, Dominic Rushe in New York, Wednesday 21 August 2013

The Federal Reserve is inching closer to reining in its $85bn-a-month
stimulus programme. Photograph: Matthew Cavanaugh/EPA

The Federal Reserve inched nearer to reining in its $85bn-a-month economic stimulus programme last month, according to the minutes of its last meeting which were released on Wednesday. But the central bank did not give any clear indication about when that scaling back might begin.

The minutes of the Federal Open Market Committee (FOMC) meeting which took place late last month offered a mixed view on committee members' willingness to ease back on the so-called quantitative easing (QE) programme. According to the minutes, "a few" officials were keen to make a move sooner and "a few" urged more caution. The minutes also revealed that some FOMC members were cautious about the still weak US recovery. US stock markets were largely unchanged after the news was released.

Most FOMC members felt that growth in the economy would pick up in the second half of the year and further strengthen in 2014. According to the minutes: "A number of participants indicated, however, that they were somewhat less confident about a near-term pickup in economic growth than they had been in June." The minutes described recent economic data as "mixed".

The Federal Reserve chairman, Ben Bernanke, indicated in June that the stimulus programme could be scaled back later this year, if economic data continued to be positive. The news sparked a sell off in the equity markets but despite some volatility they have remained close to record highs.

The QE programme, the Fed's third round of bond buying, is intended to keep rates low and encourage investment in the economy in the hopes of driving jobs growth. Bernanke has given no clear indication when any tapering in the massive bond-buying programme could begin; economists have speculated that it could come as soon as September or be delayed until next year.

The summary of the 30-31 July meeting said that while "a few [committee] members emphasized the importance of being patient and evaluating additional information before deciding on any changes to the pace of asset purchases", a few others "suggested that it might soon be time to slow somewhat the pace of purchases".

The signals from the US economy are broadly positive but there are still many concerns. Unemployment rates continue to inch down but remain relatively high. The Fed minutes said: "Private-sector employment increased further in June, but the unemployment rate was still elevated." The US housing market appears to be on the mend but some have worried that a recent rise in interest rates could have an impact. "While recent mortgage rate increases might serve to restrain housing activity, several participants expressed confidence that the housing recovery would be resilient in the face of the higher rates," the minutes said.

Ben Bernanke is expected to step down at the end of his third team
as chair of the Federal Reserve. Photograph: Manuel Balce Ceneta/AP

Bernanke is widely expected to announce his decision to resign as Fed chair. His third term comes to an end at the end of January 2014 and President Barack Obama has said that he will appoint a successor this autumn. Bernanke will hold a press conference after the FOMC's next meeting, in mid-September.

The two most likely candidates to take over Bernanke's job at present are the Fed vice-chair Janet Yellen and Larry Summers, a former Treasury secretary who is one of Obama's closest economic advisers.

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