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Fed Minutes Reveal Taper Debate

Neena Mishra

Minutes of the FOMC meeting held on September 17–18, 2013, revealed some more details about the Fed’s surprise decision to keep its asset purchase program intact.

Committee members agreed that the economy was expanding at a moderate pace but despite some improvement in labor market conditions, the employment rate remained high.

They also observed that consumer and business spending had increased and the housing sector was strengthening; but mortgage rates had risen further and fiscal policy was also restraining growth.

After taking into account the improvement in the economy and labor market conditions and the impact of fiscal retrenchment, all members except one decided to wait for more evidence of progress before making any change in the asset purchase program.

The decision to not taper was a relatively close call for several members and some were even concerned about the effectiveness of FOMC communications as financial markets were expecting a ‘tapering’.

Most participants were hopeful that the Fed could begin tapering this year and complete the program in mid-2014.

The more important Fed related news today is that Janet Yellen would be nominated as the central bank’s next chairperson.

The market expects a more accommodative Fed under her leadership.  Do think that her nomination means no tapering this year?

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