Maintaining bond buys was ‘close call’ for Fed

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Posted: Thursday, October 10, 2013 12:00 am

WASHINGTON (AP) — Nearly every member of the Federal Reserve thought last month that the central bank should see more data before slowing its bond purchases. But worries about whether a delay would confuse markets made the decision a “close call.”

Minutes of the Fed’s Sept. 17-18 meetings released Wednesday show that the Fed wrestled with the decision, even though the panel ended up voting 9-1 to keep the purchases at the current level of $85 billion a month. The bond purchases are intended to keep long-term interest rates low to encourage more borrowing and spending.

According to the minutes, all members but one thought the Fed should see more evidence that the economy’s modest improvement could be sustained. And several noted weaker employment numbers, a rise in interest rates and potential threats from a budget impasse in Washington.

Still, some raised concerns that inaction would undermine the Fed’s effectiveness in communicating its next step. Many economists had predicted some reduction in the purchases. And some Fed members made comments ahead of the meeting that suggested such a move was likely.

“For several members, the various considerations made the decision to maintain an unchanged pace of asset purchases at this meeting a relatively close call,” the minutes stated.

The Fed surprised markets after last month’s meeting by not reducing the bond buys. It made that decision after it lowered its economic growth forecast for this year and expressed concerns about higher interest rates and the prospect of budgetary gridlock in Washington.

Many economists now believe the Fed will maintain the bond purchases at their current level into next year. That’s largely because Congress has been at an impasse over the budget, leading to the first partial shutdown of the government since 1996.

A prolonged shutdown would likely slow economic growth further.

© 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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