WASHINGTON (5/23/13)--The Federal Reserve is assessing whether the labor market has made real and sustainable progress. If improvement continues, its policymakers could in the next few meetings step down its pace of asset purchases, said Ben Bernanke, testifying before the Joint Economic Committee Meeting in Washington Wednesday.
However, members of the Fed's key policymaking body, the Federal Open Market Committee (FOMC), remain split about when to introduce such measures, according to minutes released Wednesday of its April 30-May 1 meeting.
The FOMC had started a third round of bond buying in what is known as quantitative easing in September and increased it in December to $85 billion a month in securities--$45 billion in Treasury securities and $40 billion in mortgage-backed securities. At its last meeting, the committee's post-meeting statement had said the FOMC was "prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflations changes."
Most participants at the meeting "observed that the outlook for the labor market had shown progress since the program was started in September, but many of these participants indicated that continued progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases would become appropriate," the FOMC's meeting minutes indicated.
"A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth; however, views differed about what evidence was necessary and the likelihood of that outcome," the minutes said.
"One participant preferred to begin decreasing the rate of purchases immediately, while another participant preferred to add more monetary accommodation at the current meeting and mentioned that the committee had several other tools it could potentially use to do so," the minutes continued.
"Most participants emphasized that it was important for the committee to be prepared to adjust the pace of its purchases up or down as needed to align the degree of policy accommodation with the changes in the outlook for the labor market and inflation as well as the extent of progress toward the committee's economic objectives," the minutes said.
In his testimony Wednesday, Bernanke noted that credit conditions in the U.S. have eased for some types of loans, as bank capital and asset quality have strengthened. Congress and the administration could consider replacing some of the near-term fiscal restraint now in law with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run, Bernanke said.
"With unemployment well above normal levels and inflation subdued, fostering our congressionally mandated objectives of maximum employment and price stability requires a highly accommodative monetary policy," he said.
"Because only a healthy economy can deliver sustainably high real rates of return to savers and investors, the best way to achieve higher returns in the medium term and beyond is for the Federal Reserve--consistent with its congressional mandate--to provide policy accommodation as needed to foster maximum employment and price stability," he said. The Fed "will do so with the due regard for the efficacy and costs of our policy actions and in a way that is responsive to the evolution of the economic outlook."
The FOMC's next meeting will be June 18-19. For the full minutes, use the link.