Fed Minutes Suggest Continued Tapering

Federal Reserve Board Meeting On Banking Supervision
Andrew Harrer/Bloomberg via Getty ImagesFederal Reserve Chair Janet Yellen

WASHINGTON -- Federal Reserve officials agreed at their January meeting that further gradual reductions in their stimulus would be appropriate as long as the economy keeps improving.

Officials weighed the need to stress to investors that the Fed's key short-term interest rate would remain near zero, according to the minutes of the Jan. 28-29 meeting released Wednesday. But Fed officials couldn't agree on how to modify their commitment to keep the rate near zero "well past" the time the unemployment rate falls below 6.5 percent. The rate is now 6.6 percent.

At its January meeting, the Fed voted 10-0 to trim its monthly bond purchases to $65 billion. In December, the Fed had decided to make a first reduction from $85 billion to $75 billion. The bond purchases have been intended to keep long-term borrowing rates low to spur spending and growth.

The statement the Fed released after its January meeting made no mention of recent turbulence in financial markets. But the minutes showed that officials had discussed market volatility.

Though the officials thought the turbulence in emerging markets should be monitored, they felt that so far it posed little threat to U.S. markets.
Many economists think the Fed will keep trimming its bond purchases this year until they're eliminated altogether in December.

The Fed met in January just two days before Ben Bernanke stepped down after eight years as chairman. Bernanke was succeeded on Feb. 3 by Janet Yellen.

Delivering the Fed's twice-a-year report to Congress last week, Yellen said the central bank would likely take "further measured steps" to scale back its bond purchases. Yellen agreed that the economy was strengthening enough to withstand a reduction in bond purchases. But she signaled that the Fed still planned to keep short-term rates at record lows "well past" the time unemployment falls below 6.5 percent.

Economists say the decline in unemployment to the current 6.6 percent overstates the health of the job market. Much of the drop in unemployment reflects disappointed job seekers who have given up looking for work and are no longer counted as unemployed.

In her testimony, Yellen acknowledged that fact, saying, "The recovery in the labor market is farm from complete."

Private analysts are forecasting that the Fed will keep its target for short-term rates, which has been at a record low near zero since December 2008, at that level until late 2015.

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U6 unemployment is still over 13%!

February 20 2014 at 10:13 AM Report abuse rate up rate down Reply

who will audit? and then end The Fed?

February 19 2014 at 4:00 PM Report abuse rate up rate down Reply

There is no sense at all of maintaining any sizeable balance in one's savings or checking account. Why undertake such a risk given this zero interest rate environment as it's not even legally one's money to begin with? It's simply best just to hoard cash, or purchase short term Treasuries.

February 19 2014 at 3:12 PM Report abuse rate up rate down Reply
1 reply to rgkarasiewicz's comment

yep. Washington rewards spending and debt via the tax code and punishes saving and investment the same way. that's too much power and they are running amok with it.

February 19 2014 at 4:01 PM Report abuse rate up rate down Reply