Federal Open Market Committee signs off tapering

The Federal Open Market Committee approved tapering bond purchases but was divided over the date of the operation, according to the FOMC minutes.

During their latest meeting at the end of July, the content of which was recently unveiled, the majority of Fed officials said they agreed with plans previously outlined by chair Bernanke (pictured) to progressively reduce asset purchases before ending them entirely in 2014.

However, the FOMC has not reached an agreement on when it is best to start the move. As the minutes showed, Fed officials are concerned that the economy might not be strong enough to support tapering at the next meeting on 17-18 September.

“A few members emphasised 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 said.

The officials also agreed on keeping interest rates at current levels until the unemployment rate falls below the 7% threshold and inflation above 2%, compared with the current 7.4% and 1% rates respectively.

Commenting on the overall state of the American economy, the FOMC minutes read:

“Information received since the Federal Open Market Committee met in June suggests that economic activity expanded at a modest pace during the first half of the year. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated.

“Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen somewhat and fiscal policy is restraining economic growth. Partly reflecting transitory influences, inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.”

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