US Fed minutes offer few clues on when QE3 flow will ease

Published: 8:51 AM, August 22, 2013
Updated: 4:00 AM, August 23, 2013
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WASHINGTON — A few Federal Reserve officials thought last month it would soon be time to slow the pace of their bond buying “somewhat” but others counselled patience, according to meeting minutes that offered little hint on when the United States central bank might reduce its support for the US economy.

The minutes of the Fed’s meeting on July 30 and 31, released yesterday, showed that almost all of the 12 members of the policy-making Federal Open Market Committee agreed changing the stimulus was not yet appropriate.

Investors are anxiously waiting to see when the Fed will start to slow its US$85 billion (S$109 billion) monthly asset purchases, with most predicting next month as the beginning of the end of the aggressive quantitative easing programme, known as QE3.

The minutes provided few clues on the potential timing for a reduction and did not mention September specifically, but they did little to dissuade predictions.

In June, Chairman Ben Bernanke sparked an abrupt bond sell-off when he said the Fed expected to trim QE3 later this year and to halt it by the middle of next year. In recent days, currencies from India to Indonesia have tumbled as investors fear tighter Fed policy will starve emerging markets of investment.

Yesterday’s minutes appeared crafted to avoid such a reaction, and to give policy-makers as much leeway as possible on when to act.

The Fed, which has taken unprecedented steps to help the slow and erratic US economic recovery, wants to see sustainable economic growth and improvement in the labour market before it winds down the bond buying.

Policy-makers have pledged to keep rates near zero at least until the unemployment rate falls to 6.5 per cent, provided inflation remains under control.

According to the minutes, policy-makers noted that the unemployment rate — which stood at 7.4 per cent last month — had declined “considerably” since the latest round of bond buying began last September.

There were signs, however, of “more modest” labour market improvement, such as the large number of Americans who had given up the hunt for work.

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