Many on Fed want further jobs improvement before tapering QE

‘Watching Closely’

The minutes show that “many others worried about the low level of inflation, and a number indicated that they would be watching closely for signs that the shift down in inflation might persist or that inflation expectations were persistently moving lower.”

Fed officials speaking since the meeting have sought to clarify Bernanke’s June 19 remarks after his timetable for slowing the pace for unprecedented stimulus triggered a surge in interest rates. The yield on the 10-year Treasury climbed to 2.74% on July 5 from 2.19% the day before Bernanke spoke, while the national average for the 30-year fixed-rate mortgage rose to as high as 4.46% on June 27 from as low as 3.35% in May.

Federal Reserve Bank of New York President William C. Dudley said on June 27 that the central bank may prolong its asset-purchase program if the economy falls short of policy makers’ expectations. Fed Governor Jerome Powell and Atlanta Fed President Dennis Lockhart, speaking on the same day, sought to damp expectations the central bank will increase the target interest rate sooner than previously forecast.

Clarify Approach

Bernanke has an opportunity to clarify his approach to bond buying in a speech scheduled for 4:10 p.m. today in Boston and titled, “A Century of U.S. Central Banking: Goals, Frameworks, Accountability.”

The 59-year-old Fed chief has engineered several unorthodox programs to revive credit and economic growth amid the worst recession since the Great Depression. The Fed cut its target interest rate to near zero in December 2008 and has pledged to hold it there as long as the unemployment rate remains above 6.5% and the outlook for inflation doesn’t exceed 2.5%.

The Fed began purchasing $40 billion a month of mortgage backed securities in September and announced $45 billion a month of Treasury purchases in December. The program, known as QE3 for the Fed’s third round of quantitative easing, has expanded the central bank’s balance sheet to a record $3.49 trillion.

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