Federal Reserve Blog

Finance Blogs » Federal Reserve » FOMC members unsure of ‘taper’

FOMC members unsure of ‘taper’

By Allison Ross · Bankrate.com
Wednesday, January 8, 2014
Posted: 5 pm ET

Most members of the Federal Open Market Committee agreed that the economy had improved enough to begin to slowly cut its monthly asset purchases, but some members worried what such a taper would do to the markets, according to FOMC meeting minutes released today.

The Federal Reserve released minutes from the Dec. 17-18 FOMC meeting when members voted to cut the Fed's monthly asset purchases from $85 billion to $75 billion.

The FOMC is responsible for setting monetary policy and short-term interest rates.

The minutes show that most members agreed it was right to begin the taper. But some members worried the taper could throw the markets into a bit of a panic.

According to the minutes:

Some worried that, if the committee began to reduce asset purchases, market expectations might shift, and they wanted to reinforce the forward guidance to mitigate the risks of an undesired tightening of financial conditions that could have adverse effects on the economy.

The minutes also noted:

As a consequence, many members judged that the committee should proceed cautiously in taking its first action to reduce the pace of asset purchases and should indicate that further reductions would be undertaken in measured steps.

Still, overall, members were apparently on board with beginning a small taper.

In fact, many were concerned about what continued qualitative easing could do to financial stability, saying the "highly accommodative stance of monetary policy could provide an incentive for excessive risk-taking in the financial sector."

Unemployment rate threshold

The minutes also reveal a debate among members over whether to lower the unemployment rate threshold at which the Fed will begin considering interest rate increases. The Fed had previously put that unemployment rate threshold at 6.5 percent. Some members at the meeting suggested dropping it to 6 percent.

In the end, the FOMC scrapped that idea in favor of vaguely saying it would likely "maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5 percent."

Inflation rate concerns

The fact that inflation continued to run "well below" the committee's objectives prompted some members to push the committee to "clearly convey that inflation remains an important consideration in adjusting the target funds rate." However, most members felt that the inflation rate would move back toward 2 percent over time, "as the economic recovery strengthened."

The next meeting will be held in late January and will be the last one with Ben Bernanke as Fed chairman. Janet Yellen will soon step in, becoming the first woman to run the central bank in its 100-year history.

Follow me on Twitter: @allisonsross.

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
Add a comment

(Comments may take 5-10 minutes to appear)