The News Courier in Athens, Alabama

State and Nation

July 10, 2013

Minutes of Fed policy meeting show sharp divisions

(Continued)

Some wanted to explain it in the post-meeting statement. Others felt the statement might be misinterpreted. In the end, most participants thought Bernanke should lay out the Fed's thinking in his news conference — and stress that any pullback in bond purchases would depend on the economic outlook.

Bernanke stressed at the news conference last month that if the economy weakens, the Fed wouldn't hesitate to step up its bond purchases again. Still, stocks and bonds plunged after his remarks, and interest rates surged.

Several Fed members helped steady stock markets in the days that followed by noting that any pullback in bond buying would hinge on the economy's health, not a target date. Stocks have since regained most of their losses, in part because of encouraging data about the job market and corporate earnings.

Ultra-low rates have encouraged more Americans to buy homes and cars, helped support the economy and cheered the stock market. Investors worried that once the Fed starts scaling back its bond buying, home loans would start to cost more, corporations would pay more to borrow and bond investors would be squeezed.

But steady job gains have raised the likelihood that the Fed will announce after its September meeting that it's reducing its bond purchases.

Still, economic growth has been subpar. The economy grew at an annual rate of just 1.8 percent in the January-March quarter. Economists think growth stayed below a 2 percent annual rate in the April-June quarter. If so, it would mark a third straight quarter of weak growth.

Most think growth will pick up in the second half of the year but stay around 2 percent for the year.

The Fed's forecasts are rosier: It predicts growth of 2.3 percent to 2.6 percent this year and more than 3 percent in 2014. It also expects unemployment to fall as low as 7.2 percent by the end of this year and as low as 6.5 percent by the end of 2014.

Many analysts think the Fed could begin slowing its bond purchases from $85 billion a month to around $65 billion in September and gradually shrink them before ending them by next summer. That would likely happen, though, only if the job market and the economy continued to strengthen. Bernanke has said the bond-buying would end when the unemployment rate would be around 7 percent. It's now 7.6 percent.

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