Fed minutes show concerns about bond purchases

Published on NewsOK Modified: February 20, 2013 at 3:39 pm •  Published: February 20, 2013
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Some pointed to the Fed's lopsided 11-1 vote last month for the current level of bond purchases as a sign that Chairman Ben Bernanke commands a large majority for keeping the monthly purchases at $85 billion until the job market strengthens significantly.

Other analysts said the extensive discussion of the purchases at last month's policy meeting signaled rising concern about the risks of continuing the bond-buying program.

Paul Ashworth, chief U.S. economist at Capital Economics, said he had assumed that the current purchase level would continue into the first half of next year.

"There is now a big question mark around that view," Ashworth said.

After reading the minutes, Ashworth said he thought it was possible that the Fed will decide to scale back its purchases as early as its next meeting, March 19-20.

But Martin Schwerdtfeger, senior economist at TD Economics, suggested that any reduction in the size of the bond purchases wouldn't happen until the final three months of this year at the earliest.

Bernanke may provide more guidance when he gives the Fed's twice-a-year economic report to Congress next week.

The Fed is embarked on its third round of bond purchases. Unlike the previous rounds, the latest effort is open-ended: The Fed has said it will keep buying bonds until it sees substantial improvement in the job market. It also plans to keep a key short-term interest rate at a record low at least until the unemployment rate falls below 6.5 percent. The rate is now 7.9 percent.

The lone dissenter in the Fed's vote last month to continue its current policies was Esther George, president of the Fed's Kansas City regional bank.

The minutes noted that officials thought the economy was showing signs of modest improvement at the start of 2013. Policymakers observed that the job market had been improving gradually and that super-low interest rates had helped boost sales of autos and other consumer products.

But Fed officials also cautioned that threats remained. They pointed to possible economic disruptions from budget debates in Washington, including the scheduled start of across-the-board spending cuts on March 1 — cuts that could slow the economy's growth.



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