Fed minutes show cautious move towards end of economic stimulus

[alp227]

Source: The Guardian

The Federal Reserve inched nearer to reining in its $85bn-a-month economic stimulus programme last month, according to the minutes of its last meeting which were released on Wednesday. But the central bank did not give any clear indication about when that scaling back might begin.

The minutes of the Federal Open Market Committee (FOMC) meeting which took place late last month offered a mixed view on committee members' willingness to ease back on the so-called quantitative easing (QE) programme. According to the minutes, "a few" officials were keen to make a move sooner and "a few" urged more caution. The minutes also revealed that some FOMC members were cautious about the still weak US recovery. US stock markets were largely unchanged after the news was released.

Most FOMC members felt that growth in the economy would pick up in the second half of the year and further strengthen in 2014. According to the minutes: "A number of participants indicated, however, that they were somewhat less confident about a near-term pickup in economic growth than they had been in June." The minutes described recent economic data as "mixed".

The Federal Reserve chairman, Ben Bernanke, indicated in June that the stimulus programme could be scaled back later this year, if economic data continued to be positive. The news sparked a sell off in the equity markets but despite some volatility they have remained close to record highs.

Read more: http://www.theguardian.com/business/2013/aug/21/federal-reserve-minutes-economic-stimulus

[leveymg]

1. QE and selling discounted US assets are the only things that have been keeping the US econ. afloat.

I'm afraid we're really in for it - 1937 all over again. A lot of terrible things happened shortly thereafter.

[bhikkhu]

5. Predictions of disaster are misplaced

...as all the rational for ending QE is that the economy is running well enough on its own steam. If things weren't heading in the right direction or if there were great doubts, they'd continue QE.

[leveymg]

6. You're bullish.

I hope you're right.

[bhikkhu]

7. Thanks

of course, I know I could easily be wrong!

[leveymg]

8. Apparently, the Open Market Committee is no more confident or unified in its own assessment:

http://www.washingtonpost.com/business/economy/fed-considered-lower-bar-for-unemployment/2013/08/21/de1f55c8-0a8b-11e3-b87c-476db8ac34cd_story.html?wprss=rss_economy&tid=pp_widget

Even within the Fed, there are vastly different interpretations of the data. Some officials believe that recent low inflation readings will prove temporary, while a number of others worry they reflect weak demand and could provide justification for the Fed to continue supporting the economy, according to the minutes.

The documents also show that federal spending cuts and the end of payroll tax cuts wrought more damage than some Fed members had expected, resulting in slower growth during the year’s first half than they had anticipated. While the Fed expects a faster expansion later in the year, several officials “were somewhat less confident about a near-term pickup in economic growth than they had been in June.”

Altering the thresholds for changing short-term interest rates could help offset negative reaction from the markets when the Fed begins to scale back its bond-buying. But in the minutes, officials acknowledged the difficulty in explaining changes to its thresholds. Some worried that altering the terms would make investors lose confidence in the Fed’s commitment to abide by them and weaken their effectiveness.

[Kolesar]

2. A jobs bill and an end to the "sequester" would be a better stimulus than QE

Unfortunately, we are stuck with teabagger lunatics controlling Congress and stopping that.

[Initech]

3. When are we going to end the economic stimulus to the upper 1%?

They've been enjoying free subsidies for too long.

[Yavin4]

4. Since Reagan, we've been overly relying on monetary policy to boost the economy

and that's the biggest reason for the 1%/99% split. We've completely ignored fiscal policy which spread the benefits of an economic stimulus more evenly.

In a perfect world, you'd have both. Monetary and Fiscal stimuli to spur demand and investment.

Monetary stimuli is a good thing, but the benefits mostly accrue to the elite who then use their economic leverage politically to shut down fiscal stimuli.