WASHINGTON (AP) — 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?
Minutes of their June policy meeting released today 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 Corp (NYSE:BAC) 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 Group AG (ADR) (NYSE:CS), said she still thinks the Fed will start pulling back its purchases in September.
The jobs report for June, which was released after the Fed met last month, “went at least some way toward satisfying those who were looking for more improvement in labor market conditions,” Saporta said.
Unless the economic data significantly worsen in July and August, “it seems like most Fed officials expect tapering to begin in September,” she said.
Employers added 195,000 jobs in June, and revisions showed that another 70,000 jobs were added in the previous two months. The unemployment rate was unchanged at 7.6 percent.
Fed members also struggled at last month’s meeting over how best to convey the Fed’s thinking about its timetable for bond purchases, the minutes showed.
Some wanted to explain it in the post-meeting statement. Others felt the statement might be misinterpreted. In the end, most participants thought Bernanke should lay out the Fed’s thinking in his news conference — and stress that any pullback in bond purchases would depend on the economic outlook.
Bernanke stressed at the news conference last month that if the economy weakens, the Fed wouldn’t hesitate to step up its bond purchases again. Still, stocks and bonds plunged after his remarks, and interest rates surged.