"Broadly comfortable", "Almost all", "a few", sure does not sound like they are all on the same page.
Federal Reserve policy makers were "broadly comfortable" with Bernanke's plan to start reducing bond buying later this year if the economy improves, with a few saying tapering might be needed soon, minutes of their last meeting show.
The minutes said "almost all" FOMC members agreed the Fed should begin reducing its purchases of bonds later this year, and conclude QE by the middle of 2014. However, one member said the central bank should signal it will begin cutting its purchases in the "near future." Broadly speaking, the FOMC said the economy was expanding at a "modest" pace in the first half of the year, but worried about excessively light inflation.
"Almost all" committee members agreed that a change in the purchase program was "not yet appropriate" and "a few" said "it
might soon be time" to slow the pace of purchases. "A few" emphasized the importance of being patient.
The Fed staff continued to work on tools for the exit from the record stimulus, briefing FOMC participants on the possibility
of "a fixed-rate, full-allotment overnight reverse repurchase agreement facility as an additional tool for managing money
market interest rates." The minutes said such a tool would allow the FOMC to offer an overnight, risk-free instrument to a "wide range of market participants," and possibly improve their ability to keep short-term rates at desired levels.
FOMC participants continued to expect economic growth to
pick up in the second half of 2013 and "strengthen further."
The minutes said "a number" of participants were somewhat less
confident than they had been in June due to higher mortgage
rates, higher oil prices, slow growth in U.S. export markets,
and the risk that fiscal restraint might not decrease.
The FOMC affirmed a pledge on July 31 to continue bond
buying until seeing signs "the outlook for the labor market has
improved substantially." While employers in July expanded
payrolls by 162,000 workers, the smallest gain in four months,
the jobless rate fell to a more than four-year low.
Payroll growth over the past six months has averaged almost
200,000, compared with a 141,000 average in the six months
before September, when the FOMC announced a third round of bond
buying. Also, jobless claims fell to 320,000 in the week ended
Aug. 10, the least since October 2007.
"We've come a long way," said Joe Carson, who helps
oversee $434.6 billion as director of global economic research
at AllianceBernstein LP in New York. "The unconventional policy
of QE has given you a lot of bang for the buck," he said before
release of the minutes. "The Fed should be pretty happy with
the outcome they've had from this because they've had growth
with little inflation."
With inflation well below the FOMC's 2 percent target,
policy makers have leeway to press on with bond buying that has
pumped up the Fed's balance sheet to a record $3.65 trillion.
Their preferred inflation gauge, the personal consumption
expenditures index, increased 1.3 percent in the 12 months ended
in June. Excluding food and energy, the index rose 1.2 percent.
Chicago Fed President Charles Evans, a voting member of the
FOMC this year who dissented twice in 2011 in favor of easier
policy, said this month he wouldn't rule out a reduction in bond
purchases at the meeting next month.
Three other Fed district bank presidents who don't hold a
vote this year -- Sandra Pianalto of Cleveland, Richard Fisher
of Dallas and Dennis Lockhart of Atlanta -- also expressed
openness this month to a dialing down in so-called quantitative
easing in September.
St. Louis Fed President James Bullard, who has backed
continued bond buying, said policy makers should be careful not
to change course based solely on their economic outlook.
FOMC forecasts "have tended to be too optimistic,"
Bullard, who votes on policy this year, said in an Aug. 14
speech. "Caution is warranted in taking policy action based on
FOMC participants predicted in June that gross domestic
product will grow this year from 2.3 percent to 2.6 percent.
During the second quarter, GDP rose at a 1.7 percent annualized
rate, after a 1.1 percent gain in the first quarter, according
to the Commerce Department.
Accelerating growth indicates the economy is overcoming
across-the-board federal budget cuts known as sequestration that
started in March. Gains in manufacturing, record exports, looser
bank lending and a sustained housing recovery are improving the
odds for a speed up in growth.
Stronger U.S. growth and speculation the Fed will scale
back bond purchases has helped erase about $1.37 trillion from
the value of emerging-market equities in the past three months,
data compiled by Bloomberg show.
Emerging-market stocks dropped for a fifth day. India's S&P
BSE Sensex and Indonesia's Jakarta Composite Index both fell to
11-month lows today, while Turkey's lira fell to a record low
versus the dollar.
In the U.S., speculation over the timing for a Fed tapering
has pushed up borrowing costs. The yield on the 10-year Treasury
note this week rose to a two-year high of 2.88 percent.
The interest rate on a 30-year fixed home loan climbed to
4.4 percent last week, according to data compiled by Freddie
Mac. The benchmark gauge for home financing increased from a
record-low 3.31 percent in November and posted its biggest-ever
quarterly gain of 25 percent from April to June.
Higher mortgage rates aren't deterring buyers. Sales of
previously owned homes climbed last month to the fastest pace
since November 2009 as more buyers entered the market, the
National Association of Realtors said today.
Rising yields have been accompanied by improving confidence
among consumers, whose spending makes up more than two-thirds of
the world's largest economy. The Bloomberg Consumer Comfort
Index early this month reached the highest reading since January
2008. The New York-based Conference Board's confidence gauge in
June and July also had the strongest two months in more than
Home Depot Inc., the largest U.S. home-improvement
retailer, raised its annual forecast yesterday as shoppers
buoyed by the housing recovery spent more on projects. The
Atlanta-based company said rising home prices are helping
consumers spend more.
Some consumers are reluctant to spend beyond necessities,
dimming the outlook retailers including Wal-Mart Stores Inc.
The world's largest retailer, Wal-Mart cut its annual
profit forecast this month. Americans will probably continue to
curb spending amid higher payroll taxes and increased gasoline
prices that sap buying power, Chief Financial Officer Charles
Holley said on an Aug. 15 earnings call.
State of Louisiana
Department of the Treasury