Federal Reserve officials felt they could decide to start scaling back the U.S. central bank’s massive asset-purchase program at one of its next few meetings provided this was warranted by economic growth.
Minutes of the Fed’s October 29-30 policy meeting, released on Wednesday, also showed officials discussed how to distinguish between asset buying and forward interest rates guidance, including how to enhance rate guidance once they start to taper bond purchases.
Some suggested reducing the interest paid to banks on excess reserves held at the Fed would help to hammer home its intention to keep interest rates low.
Some thought reducing the unemployment threshold on when the Fed would start to consider raising rates might help. But that suggestion appeared to have been countered by other officials who worried that changing the threshold would undermine Fed credibility.
“Many members stressed the data-dependent nature of the current asset-purchase program,” according to the minutes. “Some pointed out that, if economic conditions warranted, the Committee could decide to slow the pace of purchases at one of its next few meetings.”
Policymakers of the Federal Open Market Committee are next scheduled to gather on December 17-18.
U.S. stocks .SPX and crude oil prices turned lower on the news of the minutes, while yields on U.S. Treasury bonds went up.
Economists said the tone of the debate among officials last month highlighted their desire to shift the focus of their policy action from bond buying toward forward guidance, aimed at holding down rate-hike expectations.
“The minutes of the October FOMC meeting added to the sense that Fed policymakers are laying the groundwork for relying more heavily on forward guidance and less on asset purchases as the main tool of policy,” wrote Barclays economist Peter Newland in New York.
Officials voted to keep buying bonds at an $85 billion monthly pace at the October meeting and many economists think they will delay scaling back purchases until January or March.
The Fed has held interest rates near zero since late 2008 and quadrupled its balance sheet to $3.9 trillion through three massive rounds of bond buying to stimulate the economy by keeping interest rates low.
That said, St. Louis Fed chief James Bullard said earlier on Wednesday that he would not rule out action at their meeting in December, noting cumulative gains in the labor market since last year.
His comment echoed a remark by Fed Chairman Ben Bernanke on Tuesday, who also said the central bank could keep interest rates near zero until “well after” unemployment falls under 6.5 percent.
The Fed has promised to hold rates near zero until unemployment hits 6.5 percent, provided the outlook for inflation stays under 2.5 percent. But Bernanke said the Fed could be patient in waiting to start raising rates. The U.S. jobless rate was 7.3 percent in October.
Back in October, officials had discussed using exactly the sort of public statement deployed by Bernanke: “either to improve clarity or to add to policy accommodation, perhaps in conjunction with a reduction in the pace of asset purchases as part of a rebalancing of the Committee’s tools.”
Officials also held an unscheduled video conference call on October 16 to discuss contingency plans should the U.S. Treasury become temporarily unable to meet debt obligations due to a budget battle in Washington over raising the U.S. debt ceiling.
There was also a discussion of making a mention in October’s statement that the 16-day partial government shutdown made it harder to assess economic conditions. But officials, who did not expect it to have much broad economic impact, decided not to do so because that would have overemphasized its importance for policy.
REUTERS
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