11 April 2021

Fed Meeting Minutes Cause Market Unease

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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.

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