Short-term rate increase coming 'relatively soon'
WASHINGTON (AP) -- 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 minutes said "several participants" argued that unless the Fed’s economic outlook changed, it should continue to reduce its bond purchases by $10 billion at each meeting this year.
The policy 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 signaled that the Fed still planned to keep short-term rates at record lows "well past" the time unemployment falls below 6.5 percent.
The minutes showed that the participants discussed how and when to change their statement’s assurances that short-term rates will remain low. Some suggested scrapping the 6.5 percent unemployment threshold and instead describing the changes in the job market and inflation that might trigger a rate increase.
The minutes noted that "a few participants" raised the possibility that an initial increase in short-term rates should come "relatively soon."
No decision was made.