Fed says taper on track by the end of the year

Federal Reserve officials agreed with Ben Bernanke's view that the economy will pick up later this year and allow the central bank to taper its asset purchases. However, officials did not signal when this move may come or how big the taper will be.

By Greg Robb
Aug. 21, 2013, 2:19 p.m. EDT
Market Watch

WASHINGTON (MarketWatch) — Federal Reserve officials agreed with their leader Ben Bernanke’s view that the economy will pick up later this year and allow the central bank to taper its asset purchase plan before the end of the year, according to minutes released Wednesday. But they shied away from signalling when a move might come.

The central bankers did not signal as to whether such a taper of the $85 billion-per-month bond purchase plan would come in September, October or December, the three remaining meeting dates for 2013.

There were few signs that a majority was poised to pull the trigger at the September meeting but also there were no strong arguments against a quick move.

There were conflicting views expressed, with neither in the majority.

While a “few” argued that “it might soon be time to slow somewhat” the pace of asset purchases, another “few” counseled patience. It is often hard from the minutes to judge whether a view is in the ascendancy.

Markets took an initial hawkish stance from the minutes, with stocks DJIA +0.00% extending losses and the dollar DXY +0.42% rising.

Financial markets generally expect the central bank to pull back at its September meeting by about $20 billion, according to Michael Hanson, chief U.S. economist at Bank of America Merrill Lynch.

According to the minutes, the central bankers considered, but decided again, adding language to the policy statement on the data-dependent taper plan, fearing market overreaction.

After initial turmoil in the wake of its June meeting, Fed officials thought generally that the market expectations had settled down by late July and were “aligned” with Fed views.

Some officials said they were happy that interest rates had risen and there had been an unwinding of speculative positions.

In another sign that the Fed is mulling its exit strategy, the central bankers discussed setting up a new overnight reverse repo facility to use as a new tool to accomplish its exit strategy.

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