Fed officials eye stimulus pullback in 'coming months'

Federal Reserve officials believe that if the economy continues to improve as expected, the central bank will be able to cut back on stimulus in the “coming months.”

Minutes from the Fed’s latest policy meeting released Wednesday reveal that Fed officials are quickly preparing to step back its latest round of “quantitative easing,” after the central bank indicated this fall it would like to begin tapering those purchases soon.

ADVERTISEMENT
The Fed is currently purchasing $85 billion of bonds per month in a bid to stimulate the economy, but Chairman Ben Bernanke has said the central bank could begin slowing the rate of those purchases soon, so long as the economy continues to improve. Stocks turned sharply downward after the minutes were released, on the news that officials were still looking to cut stimulus in the months ahead.

The minutes indicate that while Fed officials believe the U.S. economy could grow a bit more slowly in the second half of the year than once expected, they are still generally optimistic about the trajectory of the economy.

The Fed has previously said it would begin slowing its stimulus once the labor market has substantially improved, but the minutes also show officials discussed potentially trimming stimulus before meeting that goal, if the program became ineffective.

The minutes also indicated the Fed is in no rush to raise interest rates as stimulus slows. Rates have been near zero ever since the financial crisis and recession hit, but officials have emphasized that the slowing of purchases will not necessarily be paired with an increase in interest rates.

Furthermore, officials also debated cutting the amount of interest the Fed pays banks on reserves they keep with the institution, which some have argued could be another way to spur lending.