Fed sees stimulus taper 'in months'

Fed sees stimulus taper 'in months'

Federal Reserve policy makers expected at their October meeting that they would begin cutting the stimulus program "in coming months", the minutes of that meeting showed Wednesday.

The US Federal Reserve building is seen on August 9, 2011 in Washington, DC

The Federal Open Market Committee (FOMC) left the $85 billion a month asset-purchase program unchanged at the October 29-30 meeting.

But policymakers felt at the time that the labor market would continue to improve enough to soon begin the long-awaited taper of the program.

"They generally expected that the data would prove consistent with the committee's outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months," the minutes said.

At the same time, the group reiterated that any such move was contingent on data continuing to show a strengthening economy, and they discussed the need to better communicate their expectations for interest rate changes.

They noted that markets had overly linked together two separate policy decisions -- when the asset purchases would be cut, and when the Fed would begin raising its base interest rate.

US bond yields and market interest rates surged beginning in May after Fed Chairman Ben Bernanke signaled that the central bank could begin cutting the asset-purchase program by late this year if the economy continued to improve.

Yet at the time, and still now, the FOMC has stressed that it has no plans to raise its benchmark federal funds rate from a range of zero to 0.25 percent, where it has stood for nearly five years, before 2015.

The FOMC discussed ways it could shape its communication to "help the public separate the committee's purchase program from its policy for the federal funds rate and the overall stance of policy."

One action that most of the meeting participants thought could be used to reinforce its message on interest rate policy was to reduce the rate the Fed pays on commercial banks' excess reserves.

"The benefits of such a step were generally seen as likely to be small except possibly as a signal of policy intentions," the minutes said.

Such alternatives were left for more discussion at coming meetings, the next of which is on December 17-18.

Late Tuesday Fed Chairman Ben Bernanke gave a more dovish view of where the FOMC was headed at the moment.

He said in a speech that current moment economic conditions are "still far from where we would like to be."

The FOMC was "committed to maintaining highly accommodative policies for as long as they are needed," he said.

But he made no specific reference to the timing of tapering the stimulus program.

Markets took the FOMC minutes as a signal that the taper would happen earlier than the most recent expectations, and stocks dropped after having traded higher earlier in the day.

The S&P 500 was down 0.38 percent at 1,781.09 points in late trade.

The dollar meanwhile gained, with the euro trading at $1.3429, compared to $1.3544 before the minutes were released.

Do you like the content of this article?
COMMENT