Bloomberg News

FOMC Minutes Show Several Members Saw QE Over by Year-End

April 10, 2013

U.S. Federal Reserve Meeting Minutes for March 20

The Marriner S. Eccles Federal Reserve building stands in Washington, D.C. Photographer: Andrew Harrer/Bloomberg

Several Federal Reserve officials said the central bank should begin tapering its quantitative easing program later this year and stop it by year end, minutes of their March meeting showed.

The Federal Open Market Committee members “thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end,” according to the record of the March 19-20 FOMC meeting released today in Washington ahead of the regularly scheduled 2 p.m. time.

Fed officials, who met before a Labor Department report last week showed payroll growth in March was the slowest in nine months, debated how and when to curtail asset purchases that have swollen its balance sheet to a record $3.22 trillion. The committee, led by Chairman Ben S. Bernanke, decided at the gathering to press on with $85 billion in monthly bond buying until the labor-market outlook has “improved substantially.”

“Clearly the Fed was contemplating the timing of a tapering in asset purchases,” said Nathan Sheets, former international-finance director at the Fed and now global head of international economics at Citigroup Inc. in New York. “But my feeling is the last week’s employment report has put such discussions on hold. They must now be in wait-and-see mode to see what happens with the labor market.”

The Fed meeting was held before the Labor Department’s jobs report showed the economy added 88,000 jobs in March, less than the most pessimistic forecast in a Bloomberg survey. A shrinking labor force helped reduce the unemployment rate to a four-year low of 7.6 percent.

Stocks Rise

The Standard & Poor’s 500 Index rose 1.2 percent to 1,587.69 at 1:42 p.m. in New York. The yield on the benchmark 10-year Treasury note climbed to 1.78 percent from 1.75 percent yesterday.

Stocks rose as central banks in Japan and Europe reiterated stimulus plans. Japanese Prime Minister Shinzo Abe said “bold monetary easing” will reverse persistent deflation in his nation. Bank of Japan Governor Haruhiko Kuroda said the central bank will take all steps necessary to meet a 2 percent inflation target even as he indicated policy adjustments are unlikely every month.

The European Central Bank will keep rates low and continue injecting liquidity into the banking system, Governing Council member Christian Noyer said on Europe 1 radio.

Industrial Output

French industrial output rose more than economists forecast in February as production from car and aircraft factories increased and a refinery restarted. Production climbed 0.7 percent after a revised 0.8 percent decline in January, national statistics office Insee said in Paris today. Economists forecast a 0.2 percent increase, according to the median of 26 estimates in a Bloomberg News survey. Separate data showed production fell in both Italy and Spain in February.

Bank lobbyists and congressional staff in the U.S. received the potentially market-moving FOMC minutes 19 hours before the public in a release the central bank called accidental.

Brian Gross, a member of the Fed’s congressional liaison staff, distributed the FOMC minutes at 2 p.m. yesterday Washington time, according to an e-mail obtained by Bloomberg News.

The Fed, after learning of the mistake, released the minutes to news media at about 8:35 a.m. under embargo for publication at 9 a.m. in Washington instead of the planned time of 2 p.m.

Spur Growth

Policy makers aided by inflation below their 2 percent goal are continuing record accommodation to spur growth that decreased to a 0.4 percent annual rate in the fourth quarter, the slowest since the first quarter of 2011. The Fed also has held the main interest rate near zero since December 2008.

In a discussion of the potential costs from asset purchases, FOMC “participants pointed to possible risks to the stability of the financial system, the functioning of particular financial markets, the smooth withdrawal of monetary accommodation when it eventually becomes appropriate and the Federal Reserve’s net income,” according to the minutes.

The account of the meeting says “a few members felt that the risks and costs of purchases, along with the improved outlook since last fall, would likely make a reduction in the pace of purchases appropriate around midyear, with purchases ending later this year.”

“Two members indicated that purchases might well continue at the current pace at least through the end of the year,” the minutes show. “It was also noted that were the outlook to deteriorate, the pace of purchases could be increased.”

Press On

Seven central bank officials voiced support last week for the FOMC pledge to press on with asset purchases until the job market improves “substantially.” The officials, commenting in speeches and interviews, include five who hold a vote on the FOMC: Vice Chairman Janet Yellen, Governor Daniel Tarullo, Chicago Fed President Charles Evans, St. Louis’s James Bullard and Boston’s Eric Rosengren.

Atlanta Fed President Dennis Lockhart said to reporters today that he believes it’s too early for the Fed to consider reducing the pace of QE.

“I do think too much focus on that at the moment is a bit premature,” he said in Stone Mountain, Georgia, before the minutes were released to the public. “We have to wait and watch the data come in and see how the economy evolves.”

The FOMC said in March that it will keep the benchmark interest rate near zero as long as unemployment remains above 6.5 percent and inflation is projected to be no more than 2.5 percent.

Growth Outlook

The world’s largest economy slowed in the last three months of 2012 as military spending plunged the most since the waning days of the Vietnam War four decades ago. Gross domestic product in the first quarter probably grew at a 3 percent annualized pace, according to the median of 76 economist estimates in a Bloomberg survey taken April 5 to April 9.

“Participants thought that fiscal policy was exerting significant near-term restraint on the economy,” the Fed minutes said. They “judged that recent tax and spending changes were already restraining aggregate demand or would do so over the course of the year.”

On the other hand, rising home prices may be creating a “virtuous cycle” that supports household spending and financial markets, the minutes said. The S&P/Case-Shiller index of property values in 20 cities climbed 8.1 percent in January from a year earlier, the most since June 2006.

Automakers are getting a boost from an improved housing market and employment prospects as consumers replace vehicles that have been on the road for 11 years on average, according to Joe Hinrichs, president of the Americas at Dearborn, Michigan- based Ford Motor Co. (F:US)

Retail buyers have been the “driving force for the steady improvement in the industry selling rates,” Hinrichs told industry analysts in a March 27 presentation. He said gains in housing starts are “highly correlated” with increased pick-up truck sales, which is a “very favorable trend” for Ford.

To contact the reporters on this story: Jeff Kearns in Washington at; Joshua Zumbrun in Washington at

To contact the editor responsible for this story: Chris Wellisz at

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