Wednesday, May 22, 2013

Most FOMC Members Cited More Progress Needed Before Slowing QE Pace

In the FOMC minutes from the April 30th – May 1st meeting, most members of the FOMC agreed that, while the labor market has improved since the economic downturn, more progress is needed before the Federal Reserve slows the pace of its bond-buying program.

At the FOMC meeting, members continued their pledge to hold interest rates at near zero levels as long as unemployment remains above 6.5% and inflation doesn’t exceed 2.5%.

Notably, the minutes reveal that the FOMC is willing to change their bond buying at current levels as early as the next meeting on June 17-18, pending positive economic reports that demonstrate, “evidence of sufficiently strong and sustained growth.” Bernanke emphasized the point at a Joint Economic Committee of Congress today.

At the same hearing, Bernanke hinted that the Federal Reserve may be considering alternative strategies to exit QE. Previous guidance had suggested that the Fed would gradually begin selling bonds to wind down its balance sheet. In his testimony Bernanke had said that it is possible that the Fed could allow existing holdings to mature, allowing the balance sheet to run off.

At the hearing, Bernanke also said that the federal government should focus on less austerity in the short term and more aggressive fiscal cuts long term to prevent hampering economic growth.

Read the FOMC minutes.

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