Most Fed officials saw QE tapering this year, minutes show

U.S. Default

The U.S. economy will probably expand 1.6% this year and 2.6% in 2014, each 0.1 percentage point less than forecast in July, the International Monetary Fund said yesterday. A U.S. default after the Oct. 17 deadline for raising the debt ceiling could “seriously damage” the world economy, the IMF said.

Even the prospect of a persistent fiscal deadlock may impair growth, Boston Fed President Eric Rosengren said in a speech in Burlington, Vermont, last week.

“The uncertainties, not to mention the outcomes themselves, threaten to have a collateral impact on the rest of the economy,” he said.

Lockheed Martin Corp., the top federal contractor, has furloughed 2,400 employees, most of them tied to nondefense programs. They are unable to work because civilian government sites are closed or because the Bethesda, Maryland-based company has received an order to stop work from agencies, Lockheed said in a statement.

Funding Authority

The lack of funding authority for the government means the Department of Labor and Department of Commerce won’t produce some of the reports that Fed policy makers use in assessing whether bond buying and near-zero interest rate policies are boosting growth. The Fed uses data from the agencies to gauge unemployment, inflation and economic growth.

The Labor Department postponed its planned Oct. 4 release of its payrolls report for September.

U.S. companies created 169,000 jobs in August, fewer than economists projected, and the unemployment rate fell as workers left the labor force. August and July were the weakest back-to- back months for payroll gains in a year.

The government shutdown “pushes further into the future the time we can get a real assessment of where the economy is,” Rosengren said Oct. 2. “It is going to be much harder to get a gauge of what’s happening in the economy if we don’t have” government statistics produced by agencies that are closed.

‘Flying Blind’

Philadelphia Fed President Charles Plosser said yesterday the Fed is “not really flying blind” without official data as long as the government suspension doesn’t drag on. Policy makers can gather anecdotal economic data and receive reports from private firms, he said.

In a press conference after the FOMC meeting last month, Bernanke expressed concern about the risks from a rise in bond yields since May, when he said the committee may dial down the pace of asset purchases in its “next few meetings.”

The yield on the 10-year Treasury note climbed almost 1 percentage point through yesterday since Bernanke’s May 22 comments, with yields on Sept. 6 exceeding 3% on an intraday basis for the first time since July 2011. That compares with 1.61% on May 1, and a record-low 1.38% in July 2012.

The FOMC said in its statement last month the increase in interest rates “if sustained, could slow the pace of improvement in the economy and labor market.”

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