At Meeting, Federal Reserve Likely to Cut Bond Buying Again

By Appelbaum, Binyamin | International New York Times, April 30, 2014 | Go to article overview

At Meeting, Federal Reserve Likely to Cut Bond Buying Again


Appelbaum, Binyamin, International New York Times


The Fed's policy wing is expected to cut another $10 billion from its monthly bond purchases, to $45 billion.

The Federal Reserve is tiptoeing away from its economic stimulus campaign, and so far the broader economy has barely noticed.

The Fed's policy making committee, which was scheduled to meet on Tuesday and Wednesday, is widely expected to announce another $10 billion cut in its monthly bond purchases, to $45 billion, en route to ending the purchases this autumn.

Fed officials, meanwhile, have focused on assuring markets that interest rates will remain near zero for the next year or so, and stay low thereafter.

And after a rocky start to the Fed's retreat last summer, investors generally have accepted the official line, to judge by the prices of financial assets.

"We're exactly on the right track," John C. Williams, the centrist president of the Federal Reserve Bank of San Francisco, told Bloomberg News last week.

Things are going well enough that a management issue is rising up the list of the Fed's concerns. The Fed's seven-person board in Washington will be reduced to just three members at the end of May, for the first time in its hundred-year history, unless the Senate moves quickly to confirm two additions. The Senate Banking Committee on Tuesday approved the nominations of Stanley Fischer and Lael Brainard to join the Federal Reserve's depleted board, and the nomination of Jerome H. Powell to a new term, but they still await confirmation by the full Senate.

If the Senate does not act in time, three people will be left to do the work of seven. Moreover, the Fed's chairwoman, Janet L. Yellen, and her two remaining colleagues would be allowed to converse with one another only at scheduled public meetings, because any such interaction would involve a majority of the board.

Other challenges are looming. Forecasters, including the Fed's own staff and its officials, generally expect the economy to grow more quickly in the coming months, rebounding from a cold winter that suppressed first-quarter activity.

An early indication will come Friday, when the government is scheduled to release an initial estimate of job creation in April.

Faster growth could lead some investors to conclude that the Fed will decide to start raising rates sooner, or more quickly, than it has forecast.

"The Yellen-led Fed has not yet been tested," Vincent Reinhart, chief United States economist at Morgan Stanley, wrote in an analysis last week. "The data thus far in 2014 have been soft enough to make it plausible that the policy interest rate can be kept low for a considerable period, but not so soft as to raise significant concerns about the economic expansion. Fed officials, however, will be pressed to speak more clearly about policy sometime soon as economic data firm."

While this week's meetings are likely to pass quietly -- the Fed's next round of economic projections will be released after its June meeting, which is also the next time that Ms. Yellen is scheduled to hold a news conference -- officials are likely to discuss some of the issues that will determine the speed of their retreat from the extraordinary stimulus measures that followed the financial crisis. …

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