News Column

Fed Could Begin Cutting Stimulus as Early as June

May 22, 2013
Federal Reserve

Some Federal Reserve officials said they were willing to start ratcheting back the central bank's stimulus program as early as June if the economic recovery strengthened further, according to minutes from their policy meeting three weeks ago.

Wednesday's release of the minutes from the April 30-May 1 meeting helped roil financial markets already trying to digest earlier comments by Fed Chairman Ben S. Bernanke about the controversial bond-buying program.

The Dow Jones industrial average dropped into negative territory shortly after the minutes were released. It had initially jumped as Bernanke began his testimony to a congressional committee, then dropped, rose again and began trending down as investors tried to figure out what signals Bernanke was sending about the stimulus efforts.

The minutes offer a more detailed view into the views of the policymaking Federal Open Market Committee than its short monthly statement, though they are vague on many details.

"A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth," the minutes said.

"However, views differed about what evidence would be necessary and the likelihood of that outcome," they continued.

Fed officials have been wrestling with when and how to scale back the open-ended purchase of $85 billion a month in bonds that began in September in an attempt to stimulate more economic growth.

The official statement released after the two-day meeting that ended May 1 said the central bank would continue the purchases but for the first time indicated that it could increase or reduce the pace depending on the direction of the economy.

FOMC members voted 11-1 to approve that statement, but minutes from recent meetings show more divisions within the Open Market Committee than that vote indicated.

In recent days, some Fed officials have suggested stronger growth, particularly in the jobs market, could lead to scaling back the purchases starting this summer.

Bernanke quashed some of that speculation in his testimony Wednesday to Congress' Joint Economic Committee.

He said central bank policymakers could start scaling back the program in the next few months, but warned against moving too quickly and harming the recovery.

"If we see continued improvement and we have confidence that's going to be sustained," then central bank policymakers could start scaling back the bond-buying stimulus program "in the next few meetings," he said.

The FOMC is scheduled to meet again in June and monthly through October.

The minutes released Wednesday said that one participant wanted to begin reducing the pace of bond purchases immediately, while another preferred to increase it.

"Most participants emphasized that it was important for the committee to be prepared to adjust the pace of its purchases up or down as needed" based on the outlook for the jobs market, inflation and other economic factors, the minutes said.

The text of the Federal Reserve meeting minutes is available here.

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