NEW YORK/ST LOUIS: Three Federal Reserve officials said they believe the US economy is gaining traction despite a recent slowdown from severe weather, allowing the central bank to stick to its plan to wind down its massive bond-buying stimulus this year.
The comments, from the heads of the Federal Reserve banks of St Louis, San Francisco and Atlanta, freshen the message in the minutes of the Fed’s most recent policymaking meeting, released on Wednesday, which showed many thought only a big change in outlook could disrupt further measured reductions in purchases.
Indeed, several Fed policymakers wanted to drive home the idea that their asset-purchase programme would be trimmed in predictable, $10bn, increments, according to minutes of the Fed’s January 28-29 policy meeting.
The minutes also showed the officials were nearing a decision on how to adjust a promise to keep interest rates low for a while, including the possibility of incorporating financial stability concerns in that promise.
At the meeting, which was former chairman Ben Bernanke’s last, the Fed decided to make another modest cut to its bond-buying programme, which now runs at $65bn per month.
It made the move despite weaker-than-expected job gains in December and turmoil at the time in emerging markets brought on in part by the withdrawal of Fed stimulus. Participants generally “anticipated that the economy would expand at a moderate pace in coming quarters,” the minutes said.
“Several participants argued that, in the absence of an appreciable change in the economic outlook, there should be a clear presumption in favour of continuing to reduce the pace of purchases by a total of $10bn at each (policy) meeting.”
Even those who were more worried about persistently low inflation and high unemployment did not push for a pause to the taper, the minutes showed.
A recent run of soft economic data since the meeting, much of it attributed to bad weather, appears to have done little to change that view, at least among Fed officials speaking Wednesday.
“I think a lot of this (softness) will come back out as we get into better weather patterns,” St Louis Fed President James Bullard told journalists after a speech at the Exchequer Club in Washington.
John Williams, president of the San Francisco Fed, said in New York that the economy has shifted to a “healthy, stronger path” and noted there is a “high hurdle” to stop the US central bank from its plan to keep cutting its bond purchases.
Similarly, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said the central bank will likely end its bond-buying programme by the fourth quarter “as long as the outlook remains solid and does not deviate dramatically from the path we believe it’s on.” None of the three vote on the Fed’s policy-setting panel this year, but all three participate in regular policy discussions.Reuters
