FOMC minutes show broad support for Bernanke tapering timeline

Fed officials were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year if the economy improves, with a few saying tapering might be needed soon, minutes of their last meeting show.

“Almost all committee members agreed that a change in the purchase program was not yet appropriate,” and a few said “it might soon be time to slow somewhat the pace of purchases as outlined in that plan,” according to the record of the Federal Open Market Committee’s July 30-31 gathering released today in Washington.

“A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases,” the minutes show. “Almost all participants confirmed that they were broadly comfortable” with the committee moderating “the pace of its securities purchases later this year.”

Debate among Bernanke and his colleagues over when to taper $85 billion in monthly bond buying has roiled financial markets from Jakarta to Mumbai to New York. Some Fed officials have said the bond purchases, while helping reduce unemployment, are stoking excessive risk taking in asset such as junk bonds and leveraged loans.

Fed officials also discussed the rise in interest rates following the June FOMC meeting.

Some participants indicated that “overall financial market conditions had tightened significantly,” the minutes said. “They expressed concern that the higher level of longer-term interest rates could be a significant factor holding back spending and economic growth.”

Little Restraint

Several others said the rise in rates “was likely to exert relatively little restraint.” In addition, these participants thought that rising stock prices and easier bank lending standards would offset the impact of higher borrowing costs. Some of the officials welcomed the rise in rates “insofar as those developments were associated with an unwinding of unsustainable speculative positions.”

The FOMC will probably reduce its monthly purchases at its Sept. 17-18 meeting, according to 65% of 48 economists in an Aug. 9-13 Bloomberg survey. The median estimate called for a cut to $75 billion each month.

The Fed staff continued to work on tools for the exit from record stimulus, briefing FOMC participants on the possibility of “a fixed-rate, full-allotment overnight reverse repurchase agreement facility as an additional tool for managing money market interest rates.”

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