Many Federal Open Market Committee members said more improvement in the US labor market is required before the Central Bank would start to scale back Quantitative Easing (QE), while several others said a tapering “would likely soon be warranted”, minutes from the June 18-19 meeting showed today.
The minutes released Wednesday showed that some members needed more evidence of projected acceleration in the economy before the Fed could start tapering asset purchases.
“Importantly, participants wanted to emphasize that the pace, composition, and extent of asset purchases would continue to be dependent on the Committee’s assessment of the implications of incoming information for the economic outlook.”
Some suggested providing forward guidance about asset purchases based on numeric values for one or more economic variables, similar to thresholds for fed funds rate guidance.
Others noted possible disadvantages of such approach, saying thresholds might constrain decision making or make it difficult to communicate.
FOMC discussed providing “rough description” of future path of purchases; several noted challenge of making it clear that officials weigh broad range of economic variables and trends in assessing outlook.
Most FOMC members agreed that Bernanke should use post- meeting press conference to describe likely path for purchases in coming quarters that was conditional on economic outcomes.
Some members indicated that recent information show economy is expanding at a moderate pace. “In the economic forecast prepared by the staff for the June FOMC meeting, the projection for near-term growth of real gross domestic product (GDP) was little changed from the one prepared for the previous meeting.” Minutes said.
However, the staff’s medium-term projection for real GDP was revised up somewhat. The staff raised its projected paths for equity and home prices, which pushed up expected consumer spending over the medium term, and boosted its outlook for domestic oil production.
Several participants worried that higher mortgage rates and bond yields could slow the recovery in the housing market and restrain business expansion.
Several on FOMC said effects of cutbacks in federal spending did not appear as great as expected, yet expect fiscal policy to continue to restrain growth in coming months.
Members reiterated that the low range for the Federal funds rate will be appropriate as it is now at 0 to ¼ percent at least as long as the unemployment rate remains above 6.5 percent.