Fed minutes show divide on bonds

Fed Chairman Ben Bernanke said recovery is not complete.
Fed Chairman Ben Bernanke said recovery is not complete.
Posted: July 12, 2013

WASHINGTON - Federal Reserve officials seem far from a consensus on the question that's consumed investors for months: When will they slow their bond purchases?

Minutes of their June policy meeting, released Wednesday, show that many members felt the job market's improvement would have to be sustained before the Fed would scale back its bond purchases, which have fueled spending and growth, lifted stocks, and kept mortgage rates near record lows.

Many thought the purchases should extend into 2014, according to a summary of economic forecasts that is released with the minutes.

Still, several thought a slowdown in purchases could start soon. And one faction favored an aggressive timetable: About half those at the meeting favored ending the bond purchases late this year - months earlier than Chairman Ben Bernanke has indicated. Participants include voting and nonvoting members of the Fed's policy committee.

In remarks to a research group in Cambridge, Mass., Wednesday, Bernanke said the 2008 financial crisis showed the Fed that it must strengthen its approach to both regulation and interest-rate policies. Bernanke said the economy has yet to fully recover from the downturn.

The divisions revealed by the minutes reflect the difficulty investors have had deciphering the Fed's intentions. Bernanke has carved out a measured stance. At a news conference after last month's meeting, he said the Fed would likely slow its bond purchases later this year and end them around mid-2014 if the economy continued to strengthen.

Most investors and analysts interpreted his remarks to mean the Fed would likely announce after its September meeting that it would scale back its bond buying.

Many Fed officials side with Bernanke's approach. But the minutes were a reminder that some officials feel Bernanke's timetable is too cautious.

Some analysts think the Fed will back the chairman's notion of slowing the purchases later this year.

The minutes suggest that a slowdown in bond buying in September "is not quite a done deal," said Michael Hanson, U.S. economist at Bank of America Merrill Lynch. "For a taper in September, we may still need to see some more improvement in the economy."

Yet even the analysts differ. Dana Saporta, an economist at Credit Suisse, said she still thinks the Fed will start pulling back in September.

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