Fed split on when to taper


ben bernanke federal minutes

Will they or won’t they?

Everyone is wondering whether Federal Reserve policymakers will decide to pull back on asset purchases next month.

Minutes from the last Fed meeting in July cast some doubt on whether the central bank will move to curtail its bond buying program sooner rather than later, and show that the Fed members are still divided on when they should begin “tapering.”

A summary of the meeting, held July 30-31, indicates the economy is not growing as fast as some board members had hoped.

“The data received since the forecast was prepared for the previous meeting suggested that real GDP growth was weaker, on net, in the first half of the year than had been anticipated,” the minutes said.

Fed policymakers discussed the state of the job market at length during the meeting, according to the minutes, but were divided on whether it was improving fast enough to take action.

“A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases.”

Meanwhile, only a “few” members “suggested that it might soon be time to slow somewhat the pace of purchases” as previously outlined by Chairman Ben Bernanke.

But economists remain confident that the “Septaper” is still coming.

“There are certainly mixed views, but the consensus is in alignment with Bernanke and the timeline he has laid out,” said Chris Molumphy, chief investment officer at Franklin Templeton Fixed Income Group.

Chairman Ben Bernanke made clear at the press conference following the June meeting, that the decision to begin slowing asset purchases would be based on the strength of the job market. But if labor conditions played out as the Fed expects, that tapering would likely begin later this year, with the entire purchase program ending sometime in the middle of 2014, as long as the economy improves and the unemployment rate falls to around 7%.

The unemployment rate stood at 7.4% in July.

Related: Fed chair smackdown: Summers vs. Yellen

The Federal Reserve has been buying about $85 billion a month in bonds and mortgage-backed securities in an effort to keep interest rates low and spur economic growth — a program known as quantitative easing.

Up until recently the central bank had given no indication of when that program would end, and interest rates were at historically low levels following the Great Recession.

But when Bernanke outlined his plan to begin tapering, interest rates started soaring. Mortgage rates are now over a full point higher than they were at the beginning of May.

The sharp rise in rates caught many off guard, and now it appears the Fed may be softening its stance.

“Several participants were willing to contemplate lowering the unemployment threshold if additional accommodation were to become necessary or if the Committee wanted to adjust the mix of policy tools used to provide the appropriate level of accommodation,” the minutes stated. To top of page

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