Federal Reserve Chairman Ben S. Bernanke called for maintaining accommodation even as the minutes of policy makers’ June meeting showed them debating whether to stop bond buying by the Fed in 2013.
“Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said yesterday in response to a question after a speech in Cambridge, Massachusetts.
The Fed chairman spoke just three hours after the central bank released minutes of the June 18-19 gathering showing that about half of the 19 participants in the Federal Open Market Committee wanted to halt $85 billion in monthly bond purchases by year end. At the same time, the minutes showed many Fed officials wanted to see more signs employment is improving before backing a trim to bond purchases known as quantitative easing.
The debate underscores Bernanke’s challenge in affirming that, even after starting to reduce monthly bond buying, policy makers plan to maintain unprecedented stimulus with a record- high balance sheet and near-zero target interest rate.
“It is clear they want to pull the trigger on the wind- down of QE, but they also want to calm market anxieties about raising rates for the foreseeable future,” said Ward McCarthy, chief financial economist at Jefferies Group LLC in New York and a former Richmond Fed economist. Their attempts at providing clarity are further complicated because of “pretty significant divisions among policy makers on a number of issues.”
U.S. stocks rose and bond yields fell today as Bernanke’s comments reassured investors that the days of loose U.S. monetary policy aren’t over. The Standard & Poor’s 500 index rose 1.1% to a record 1,670.72 at 9:34 a.m. in New York. The yield on the 10-year Treasury fell to 2.59% from 2.63% yesterday.
The minutes also said “several members judged that a reduction in asset purchases would likely soon be warranted.” Those members said the “cumulative decline in unemployment since the September meeting and ongoing increases in private payrolls” had increased their confidence the labor market had improved, according to the minutes.
“The many FOMC voices seem all over the map, yet they do agree the labor market improvement looks more sustainable now than it did at the time of the QE launch,” said Chris Rupkey, the chief financial economist for Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “This means to us that the program’s days are numbered.”