Investors are trying to determine
whether Federal Reserve policymakers will decide to pull back on asset
purchases next month. A summary of the meeting, held July 30-31, indicates
the economy is not growing as fast as some board members had hoped.
Members
of the Federal Reserve’s policy-setting board discussed at length when the
central bank should begin slowing its $85 billion per month bond-buying
program. The meeting minutes said
“almost all” FOMC members agreed the Fed should begin reducing its purchases of
bonds later this year, and conclude the program by the middle of 2014.
"The data received since the
forecast was prepared for the previous meeting suggested that real GDP growth
was weaker, on net, in the first half of the year than had been
anticipated," the minutes said.
A few of the members preached being
patient and to take time to evaluate additional economic information before
deciding on any changes to the pace of asset purchases. Many economists still
feel the tapering of bond purchases will start in September.
While there were different
opinions offered, the general consensus was in line with Fed Chairman Ben Bernanke’s
timeline announced after the June meeting. He said the decision to begin
slowing asset purchases would be based on the strength of the job market.
If labor conditions continue to
improve as the Fed expects, that tapering would likely begin later this year,
with the entire purchase program ending sometime in the middle of 2014, as long
as the economy improves and the unemployment rate falls to around 7%. The unemployment rate stood
at 7.4% in July.
Because of the massive
bond-buying program, interest rates have been at historic lows. When Bernanke announced
the plan to begin tapering at some point this year, interest rates started to
rise. Mortgage rates are now over a full point higher than they were at the
beginning of May.
After the minutes were released
Wednesday, stocks initially
fell to lows for the day, but then bounced back up. The uncertainty of the Fed’s
plans will continue to affect the markets, for good or bad.