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Fed minutes offer confusion

By Polyana da Costa · Bankrate.com
Wednesday, August 21, 2013
Posted: 5 pm ET

The Federal Reserve is less optimistic about the economy and uncertain about when to trim the stimulus program that has long helped keep rates low, the minutes from the latest Fed meeting show.

Investors had hoped for clarity about the timing of the reduction of the bond-purchase program. Instead, investors were offered more confusion when the minutes of the July 30-31 meeting were released today.

Waiting for the economy to improve

The economy isn't doing as well as Fed members had expected, the minutes show. Yet, most Fed members said they were "broadly comfortable" with the plan presented by Fed Chairman Ben Bernanke during a press conference in June. The plan was to slow the pace of the purchases this year and to end the $85-billion-per-month bond-buying program by mid-2014. It's a good plan, the committee says, but it might be too soon, so please be patient.

"A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases," the minutes read.

Patience is indeed needed.

The stock market and the mortgage market have been wild since the Fed started to hint it would taper the stimulus program this year. Mortgage rates have jumped by more than a percentage point since June. Housing advocates worry that rising interest rates will hurt the recovery of the housing market and many homeowners lost the opportunity to refinance their homes at lower rates.

But the Fed isn't convinced that higher mortgage rates will do that much damage to the economy yet.

No, no -- everything's fine. Really.

"While recent mortgage rate increases might serve to restrain  housing activity, several participants expressed confidence that the housing recovery would be resilient in the face of the higher rates, variously citing pent-up housing demand, banks' increasing willingness to make mortgage loans, strong consumer confidence, still-low real interest rates, and expectations of continuing rises  in house prices," the minutes read.

Still, with refinancing activity down sharply, the Fed says it must watch for signs of a greater-than-anticipated effect of higher mortgage rates on housing activity. Other areas of concern: economic growth during the first half of this year was somewhat below the Fed's earlier expectations and a number of Fed members said they were somewhat less confident about a near-term pickup in economic growth.

For these reasons, the last meeting wasn't the "appropriate" time to change the stimulus program, the minutes show.

But will the next Fed meeting be the appropriate time to taper the program?

Please be patient. You will find out the next time the Federal Open Market Committee meets, Sept. 17-18.

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