Some Fed officials want to slow economic help soon
August 22, 2014, 12:04 am TWN
WASHINGTON--Some U.S. Federal Reserve officials think the U.S. economy is improving fast enough that the Fed will need to act sooner than previously thought to slow the extraordinary support it's been providing through ultra-low interest rates.
Minutes of the Fed's discussion at its July 29-30 meeting released Wednesday show that some officials thought the Fed would need “to call for a relatively prompt move” to reduce the stimulus it has supplied since the financial crisis erupted in 2008. Otherwise, these officials felt the Fed risked overshooting its targets for unemployment and inflation.
In the end, the Fed made no changes at the July meeting. It approved, 9-1, keeping its current stance on interest rates.
Those who think the Fed should withdraw its support only slowly cited persistent drags on the job market despite solid hiring and a steady drop in the unemployment rate: High levels of people who have been unemployed for more than six months; many people who are working part time even though they want full-time jobs; and chronically weak pay growth.
In addition, the minutes showed that the Fed debated how to unwind the bond purchases it has made over the past six years to keep long-term rates low. Many decisions, such as how and when to start reducing its enormous investment portfolio — amounting to nearly US$4.5 trillion — remain unsettled.
Sixth US$10 Billion Reduction
The minutes were released after the customary three weeks after the Fed's policy meeting.
In its policy statement released after the discussions, the Fed acknowledged that growth was strengthening. But it indicated that it needed to see further improvement in the job market before it starts raising its key short-term rate.
It retained language in the statement that it planned to keep that rate low “for a considerable time” after it ends its monthly bond purchases.
At the meeting, the Fed reduced the bond purchases by another US$10 billion to US$25 billion. It was the sixth US$10 billion reduction in the purchases. Before the reductions began in December, the Fed was buying US$85 billion in bonds each month as a way to keep long-term interest rates low.