US Federal Reserve policymakers expect to continue the steady cutback to its stimulus program, the minutes to their March 18 and 19 meeting showed on Wednesday.
Asian markets rose yesterday, taking their lead from a Wall Street rally after the Fed minutes showed no support for an early rise in interest rates, but early gains were pared after China said imports and exports fell sharply last month.
“There’s been this overriding fear in the market that tightening would be sooner on the horizon than people imagine,” BMO Global Asset Management market strategist Brent Schutte said. “Today’s minutes walk back some of those fears.”
The members of the US Federal Open Market Committee hedged their commitment on the performance of the economy, but the minutes show that, despite recent economic weakness, they remain on track to wind up the bond-buying program late this year.
Members of the committee agreed that “if the economy continued to develop as anticipated, the committee would likely reduce the pace of asset purchases in further measured steps at future meetings,” the minutes said.
The group, led by US Federal Reserve Chair Janet Yellen, decided at the gathering last month to make the third monthly US$10 billion cut in bond purchases since December last year, pulling the program down to US$55 billion.
The move put the central bank on track to end quantitative easing operations, in place at various amounts since 2008 to push down longer-term interest rates, by November.
The committee also discussed Russia’s annexation of Ukraine at the meeting, and said that the spillover would not likely hurt the US economy, but could impact world growth.
Meeting on the same day as the annexation, the Fed officials said the events “might have negative implications for global growth if they escalated and led to a protracted period of geopolitical tensions in that region.”
The minutes confirmed that all or nearly all of the committee members agreed on the Fed’s monetary path, including dropping its indicative targets for unemployment and inflation for more qualitative guidance to markets on plans to eventually raise interest rates.
Most were confident in the economy resuming a moderate pace of growth after the December-February slowdown, though there was significant disagreement over the degree and cause of slack in the labor market.
One concern discussed in the meeting was that easy-money policies were fueling risky behavior in credit markets that could endanger financial stability.
Those worries included increased margin lending, a shift to commodity investing, higher equity prices and greater lending to high-risk customers, both on the corporate and consumer level.