Federal Reserve had few doubts about slowing asset purchases

The US

Federal Reserve

had few doubts about slowing its asset purchases in January,

a clear sign that tapering will continue in the absence of a big shift in the economy.

Minutes of its January meeting show that only a couple of officials had concerns about slowing asset purchases, suggesting the Fed is likely to taper its asset purchases by another $10 billion to $55 billion in March despite a run of weaker data on the economy.

The minutes also show the Fed is gearing up to revamp its forward guidance as the unemployment rate nears its threshold of 6.5 per cent.

The Fed began tapering its asset purchases, which are designed to push down long-term interest rates, from $85 billion in December. Since then there has been a run of weaker economic data, although much of the bad news appears to come from the recent cold weather.

“My bottom line is that the economy is in a better place today than a year ago and before,” said Dennis Lockhart, president of the Atlanta Fed, in a speech yesterday.

“I maintain that the outlook is positive and, in terms of its basics, much improved.

“As long as the outlook remains solid and does not deviate dramatically from the path we believe it’s on, I would expect the tapering of asset purchases to continue over the balance of the year,” he said.

"I think in my view the hurdle is pretty high on changing the pace of the step-downs in our purchases that we started back in December," said John Williams, president of the San Francisco Fed, in an interview with CNBC.

Consensus
The minutes suggest Mr Lockhart and Mr Williams's view is the consensus of the Federal Open Market Committee.

It also shows preparations for a change in forward guidance on the path of interest rates as the unemployment rate nears the Fed’s threshold of 6.5 per cent.

The central bank has said it will not raise rates before then but unemployment has fallen more rapidly than expected and now stands at 6.6 per cent. The threshold, therefore, no longer offers much guidance on when the Fed will raise rates. – (Copyright The Financial Times Limited 2014)