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 The Fed's bond purchases have been intended to keep long-term
borrowing rates low to spur spending and growth.
The minutes of the Oct. 29-30 meeting, released Wednesday, also show that
members wrestled with how to assure investors that even after they cut back on
the $85 billion a month in bond buys, the Fed still intends to keep its key
short-term rate near record lows.
At the meeting, members made no changes in interest rate policy. But many wanted
to better communicate to the public its plans for both slowing its bond
purchases and keeping borrowing rates low to encourage spending. The discussion
suggests some members were worried that investors could mistakenly assume a
slowdown in bond purchases, which have kept long-term rates low, will be
followed by an increase in short-term interest rates.
Some Fed officials want to hold their benchmark short-term rate near zero even
after unemployment falls below 6.5 percent. And some suggested that even after
the first rate increase, the Fed could assure the public that rates would remain
low because economic headwinds were likely to diminish only slowly.
Stocks fell Wednesday after the minutes indicated the Fed might be closer to
scaling back its stimulus. The Dow Jones industrial average closed down 66
points.
According to the minutes, Fed members expect incoming data will show improvement
in the job market and would "thus warrant trimming the pace of purchases in
coming months." Interest rates would likely rise once the Fed slows its bond
purchases. Higher rates stand to hurt both bond and stock prices.
The minutes did not specify when that first reduction in bond
purchases might occur.
Some participants suggested that at some stage it might be appropriate to begin
trimming the bond purchases "before an unambiguous further improvement" in the
outlook for the job market. But other Fed officials objected that such a
suggestion was premature and wanted more time to assess the impact of the bond
purchases.
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Ian Shepherdson, chief economist at Pantheon Macroeconomics, said
this discussion revealed "the battle lines are clearly drawn with
some at the Fed now itching to scale back (bond purchases) unless
the incoming data are awful."
The Fed meets again in December, but most economists don't expect
any changes in the bond program until March. That would be Janet
Yellen's first meeting as Fed chairman. A Senate committee is
expected to approve her nomination on Thursday but the timing of a
vote in the full Senate is uncertain.
Ben Bernanke, the current Fed chairman, will step down in January
when his term ends.
The minutes showed that Fed policymakers held an unscheduled video
conference on Oct. 16 to discuss the impact on financial markets
should Congress not raise the borrowing limit. The minutes said that
any delay in the government's payments to investors holding Treasury
debt would be "potentially catastrophic and thus such a situation
should be avoided at all costs."
Congress approved a suspension of the borrowing limit and a
temporary budget on Oct. 16, ending the partial government shutdown.
[Associated
Press; MARTIN CRUTSINGER, AP Economic Writer]
Copyright 2013 The Associated
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