Fed Minutes Show Some Concerns On Bond Purchases
Paul Ashworth, chief economist at Capital Economics, suggested that the economy will remain tepid enough to persuade the Fed to maintain its bond buying.
"We suspect that another year of lackluster economic growth in 2013, coupled with only a modest improvement in the unemployment rate, will convince the Fed to sustain (bond purchases) into 2014," Ashworth said.
The Fed's meeting last month occurred as Congress and the Obama administration were locked in furious negotiations to resolve the fiscal cliff â¿¿ the steep tax hikes and spending cuts that were to kick in this month without a deal. The minutes said Fed officials saw the uncertainty over the fiscal cliff as a significant threat to the economy.
The deal Congress reached this week avoided the fiscal cliff. It raised taxes on the wealthiest Americans while preserving the Bush-era income tax cuts on income under $400,000 for individuals and under $450,000 for households.Chairman Ben Bernanke warned at a news conference after last month's meeting that no Fed actions could outweigh the damage that would result if the economy fell off the fiscal cliff. Congress' agreement this week was probably roughly in line with what Fed officials had expected, private economists say. As a result, they expect no changes soon to the Fed's policies. Its federal funds rate, a benchmark for many consumer and business loans, has remained near zero since December 2008. Critics of bond purchases have raised concerns that keeping interest rates at ultra-low levels for an extended period of time risks distorting financial market decisions. They worry that when the Fed finally begins raising rates, panic selling of stocks and bonds might ensue. At its next policy meeting, Jan. 29-30, the Fed is also expected to reaffirm its plan to preserve ultra-low rates until unemployment hits 6.5 percent as long as the inflation outlook isn't more than a half percentage point above its 2 percent target.
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