Fed: Job growth led to end of stimulus

Federal Reserve officials stuck with their plan last month to end massive monthly bond purchases because of an improving economy and labor market conditions.

Central bank policymakers said that economic activity expanded at a moderate pace between July and September, and that labor market conditions had improved, according to the Oct. 28-29 minutes released on Wednesday.

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“Labor market conditions had improved somewhat further, with solid job gains and a lower unemployment rate," they said.

"A range of indicators suggested that underutilization of labor resources was gradually diminishing,” they said.

Overall, since the start of the latest round of monetary stimulus in September 2012, officials generally agreed that their conditions had been met.

"There had been a substantial improvement in the outlook for the labor market and that there was sufficient underlying strength in the broader economy to support the ongoing progress toward maximum employment in a context of price stability," they said in the minutes.

Policymakers declined to include concerns about turbulent financial markets and a slowing global economy. 

Fed officials said they wanted to avoid suggesting that they held greater concerns than warranted about market conditions that might make it look like the central bank would be more likely to respond to increases in volatility.

Meanwhile, they discussed including language about global economic developments but held back over concerns that it might suggest greater pessimism about the economic outlook than they thought appropriate.

However, a number of participants noted that economic growth over the medium term might be slower than they currently expected if the foreign economic or financial situation deteriorated significantly.

Overall, participants anticipated that inflation would be held down over the near term by the decline in energy prices and other factors, but would move toward the 2 percent goal in the coming year.

Most viewed the risks to the outlook for economic activity and the labor market as nearly balanced.

Central bank policymakers also decided to wait to change wording on the timing for raising interest rates to avoid any possible misunderstandings by financial markets.

Most agreed that it would be helpful to continuing saying for a "considerable time" about how long the Fed would leave interest rates at or near zero.

Several officials were concerned that removing the guidance language "could be misinterpreted as suggesting that the committee’s decisions would not depend on the incoming data."

Many Fed watchers had expected the central bank to drop the language with the end of its quantitative easing policy. 

A couple of others noted that the removal of the "considerable time" phrase "might be seen as signaling a significant shift in the stance of policy, potentially resulting in an unintended tightening of financial conditions."

Interest rate hikes are expected to start next summer.