Bloomberg News

Fed Officials Signal Tapering Is Possible at September Meeting

August 08, 2013

Four Federal Reserve officials with varied voting records on monetary stimulus indicated greater willingness this week to begin tapering the central bank’s bond-buying program, citing confidence the economy is accelerating.

“I would clearly not rule” out a decision to start dialing back the purchases at the Sept. 17-18 gathering of the Federal Open Market Committee, Chicago Fed President Charles Evans said two days ago in Chicago. “We’ve seen good improvement in the labor market, there’s no question in my mind about that,” and “I’m still wanting to see greater evidence that it’s a sustainable improvement.”

Fed policy makers are watching the job market to determine when to begin scaling back the central bank’s $85 billion in monthly bond purchases. Officials have said they will continue the program until the labor market has improved “substantially.”

Evans, a voting member of the policy-making FOMC this year who dissented twice in 2011 in favor of easier policy, has been among the most vocal proponents of record monetary accommodation. His comments were similar to those from Cleveland Fed President Sandra Pianalto, who has always voted with the majority during her 10 years on the FOMC.

“Employment growth has been stronger than I was expecting, and the unemployment rate today is more than half a percent lower than I projected it to be last September,” she told an audience in Cleveland Aug. 7. “In light of this progress, and if the labor market remains on the stronger path that it has followed since last fall, then I would be prepared to scale back the monthly pace of asset purchases.”

Fed Vacancy

Pianalto said earlier today she would retire from the bank early next year, when the Cleveland Fed gets its turn in the rotation to vote on the FOMC.

Economic growth is gaining momentum, recent data show. American consumers last week were the most upbeat in more than five years as firings retreated for the first time to the lowest level since before the recession.

The Bloomberg Consumer Comfort Index rose to minus 23.5 for the period ended Aug. 4, its strongest reading since January 2008, a report today showed. The average number of workers applying for jobless benefits declined to 335,500 in the four weeks ended Aug. 3, the least since November 2007, according to Labor Department data.

Stocks rose today, with the Standard & Poor’s 500 Index halting a three-day skid, as Chinese trade data topped estimates. The S&P 500 climbed 0.4 percent to 1,697.48 at the close in New York.

Fewer Firings

Another report from the Labor Department this week showed job openings rose in June to the highest level in five years. It also showed fewer workers were fired in June than at any time in the previous five months.

Payrolls rose by 162,000 workers in July, the fewest in four months, following a revised 188,000 increase in June, data showed last week. The jobless rate dropped to a more than four-year low of 7.4 percent from 7.6 percent.

The economy will expand at a 2.5 percent annualized rate from July through December, up from a 1.4 percent gain in the first six months of 2013 and little changed from the pace projected last month, according to a Bloomberg survey of 59 economists conducted Aug. 2 to Aug. 6.

Fed Chairman Ben S. Bernanke said June 19 that the central bank is on track to start trimming its bond purchases later this year and end them in mid-2014 if the economy improves as policy makers forecast it will.

Fisher’s Criticism

Dallas Fed President Richard Fisher, one of the most vocal critics of the central bank’s so-called quantitative easing program, said today it’s “timely” for U.S. central bankers to begin moderating record monetary stimulus as the economy continues to improve.

“You heard a choir” from Fed officials this week that “if things go as the committee expected, then I would expect us to dial back,” Fisher said on CNBC. “We’ll have to see what the data is and the feeling is between now and the time we next meet in September.”

Dennis Lockhart, the Atlanta Fed president, told Market News International that “the progress to date is pretty impressive and certainly should be factored into the readiness of the economy to move forward without asset purchases,” according to an article published Aug. 7.

Lockhart, a supporter of Fed stimulus who doesn’t vote this year on monetary policy, said the first cuts in Fed bond purchases may come as early as September, Market News reported, citing an interview with him.

To contact the reporter on this story: Brendan Murray in Washington at brmurray@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at Wellisz@bloomberg.net


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