Fed Minutes Show Some Concerns On Bond Purchases
Bernanke made clear that even after unemployment dips below 6.5 percent, the Fed might decide that it needs to keep stimulating the economy. Other factors will also shape the Fed's policy decisions, he said.
Analysts note that Congress and the administration face a bigger budget showdown within two months, when they must reach an agreement to raise the country's $16.4 trillion borrowing limit. That agreement might result in deep spending cuts.
"Everybody at the Federal Reserve is probably still on very high alert," said Mark Zandi, chief economist at Moody's Analytics. "We are not out of the woods yet. The fiscal brinksmanship is not over."
In forecasts it updated last month, the Fed said it expected the economy to grow between 2.3 percent and 3 percent this year. Bernanke said that estimate assumed that Congress' budget deal would include some tax increases and spending cuts.The Fed's outlook for economic growth is slightly higher than many private economists expect but is achievable, says Brian Bethune, an economics professor at Gordon College in Massachusetts. "The Fed is going to keep the pedal to the metal until we get more clarity" on what kinds of spending cuts Congress will adopt, which could slow the economy going forward," Bethune said. At its December meeting, the Fed also announced that it would buy $85 billion a month in Treasury securities and mortgage-backed securities to try to keep downward pressure on long-term rates. The Fed said it would maintain those purchases until the job market improved substantially.
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