US Federal Reserve policymakers were still leaning toward reducing US monetary stimulus this year, despite a decision to hold fire last month, the minutes of their last meeting showed on Wednesday.
Meanwhile, US Federal Reserve Vice Chairwoman Janet Yellen, nominated by US President Barack Obama to lead the Fed from February next year, said she would not break with the US central bank’s current easy-money policies aimed at pushing down unemployment, still high at 7.3 percent in August.
Markets were surprised when the Fed announced, after the meeting last month, that it would leave unchanged its US$85 billion a month in asset purchases, or quantitative easing (QE), after signaling since May that it could begin to taper the stimulus later this year.
Investors had expected that the Federal Open Market Committee would launch the QE taper at last month’s meeting, sending interest rates higher in anticipation of tighter credit.
The minutes revealed that the decision to not begin trimming QE, given a recent batch of mixed economic data, was “a relatively close call.”
“Most participants viewed their economic projections as broadly consistent with a slowing in the pace of the committee’s purchases of longer term securities this year and the completion of the program in mid-2014,” the minutes said.
In the debate about whether to reduce asset purchases at the meeting, “a number of members emphasized the contingent and data-dependent nature of the committee’s purchase program,” they said.
“In light of the mixed data recently, including inflation readings that remained below the Committee’s longer-run objective, and the concerns over near-term fiscal uncertainties, some members indicated that they preferred to await more evidence that their expectation of continuing improvement would be realized,” they added.
Since the meeting last month, economic indicators have continued to point to sluggish growth. However, the government data flow has been cut off since Tuesday last week, a victim of the partial federal government shutdown as Democrats and Republicans battle over the budget and debt ceiling, with no end in sight.
The shutdown has sent home hundreds of thousands of workers without pay and has cast a cloud over the economy’s outlook.
Meanwhile, the uncertainty caused by the Washington gridlock has weighed on equity markets.
“If fiscal policy issues are resolved satisfactorily and with no lasting impact on the labor market, the Fed will stay on its current taper path,” IHS Global Insight financial economics director Paul Edelstein said.
“Our expectation remains for a December taper contingent on the outcome of fiscal policy debates and labor market data. Given the current backdrop, though, it could be a close call,” Edelstein said.
As expected, Obama nominated Yellen on Wednesday to lead the Federal Reserve in a move expected to sustain the central bank’s easy-money policies and efforts to curb joblessness.
Yellen, 67, with years of experience in academia and the central bank, has served as Fed vice chairman since 2010.
“More needs to be done to strengthen the recovery, particularly for those hardest hit by the Great Recession,” Yellen said as she accepted Obama’s nomination.
“The mandate of the Federal Reserve is to serve all the American people. And too many Americans still can’t find a job, and worry how they’ll pay their bills and provide for their families,” she added.
Asian markets were mixed yesterday as traders nervously awaited signs of progress in solving a budget stand-off in Washington that threatens to plunge the US into default.
Tokyo ended up 1.12 percent, or 156.87 points, at 14,194.71 thanks to the weaker yen, but Sydney dropped 0.11 percent, or 5.9 points, to 5,147.1 and Seoul was flat, edging down 1.36 points to close at 2,001.40.
Hopes that the Fed’s stimulus will stay in place a little longer helped emerging Asian markets, which have benefited from an investment splurge fuelled by the low US interest rates.
Jakarta was up 0.48 percent yesterday, Bangkok was 0.73 percent higher and Kuala Lumpur added 0.35 percent.