Minutes of Fed meeting show it struggled with change to stimulus program

Fed officials were worried that issuing a new guidance would spook investors and chose to convey it as only an adjustment based on improving economic conditions.
By Ananth Baliga  |  April 9, 2014 at 3:52 PM
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WASHINGTON, April 9 (UPI) -- Minutes of a Fed meeting held in early March convey how the central bank struggled to convey to investors a change in its guidance for interest rates.

The minutes for a video-conference meeting, held two weeks prior to the Federal Reserve's regular meeting March 18-19, show how the Fed was concerned about the timing of future interest rate hikes.

The Fed and Chairperson Janet Yellen decided to take an open-end approach -- that even after inflation and unemployment hit the previous targets set by the Fed, short-term rates would still remain low as the economy was still not very healthy.

But Yellen, in her first public press conference, said that the central bank's bond-buying program could end this fall, and interest rates could rise six months after that.

“These minutes are calming for the markets,” Jeffrey Kleintop, chief market strategist at LPL Financial LLC. "The six months language Yellen said does not appear here. There is no time period mentioned so it does appear to be an off-the-cuff comment from Yellen."

The markets seemed to react positively to the minutes of the meeting. The S&P 500 rose by one percent, and gold prices wiped away earlier declines. The yield on 10-year Treasury notes fell one basis point to 2.68 percent after earlier adding four points.

The minutes of the two meetings -- released Wednesday after the mandatory three-week delay -- suggest that most officials agreed that the Fed should adopt a weaker guidance than issue a completely different guidance based on the unemployment rate or other parameters.

“Most participants felt that the quantitative thresholds had been very useful in communicating policy intentions when employment was far from mandate-consistent levels, but, with the economy having moved appreciably closer to maximum employment, the forward guidance should emphasize that the committee is focusing more on a broader set of economic indicators,” the minutes said.

Some officials "expressed concerns" that investors would view any change as the Fed shying away from its bond-buying program and hoped to convey it as only an adjustment reflecting the increased strength of the recovery.

[Bloomberg Businessweek] [The New York Times]

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