FOMC minutes reveal broad support for ‘tapering’

The reduction in the scale of US quantitative easing is likely to go ahead later this year after the minutes from the last US Federal Open Markets Committee (FOMC) on July 30-31 revealed members were “broadly comfortable” with the plan.

While the minutes from the meeting on July 30-31 shed no new light on the US Federal Reserve’s plans, they showed that member of the committee seem to have accepted chairman Ben Bernanke’s plan to slowly reduce the level of bond-buying with a view to ending it during 2014.

However, the minutes showed that there was a debate within the committee about the exact state of the US economy and the labour market and how to communicate information on tapering plans to the market.

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Many members pointing to improving unemployment figures to justify tapering, with the accommodative monetary stance explicitly tied to unemployment falling below 6.5 per cent.

But other members pointed to “other measures of labour utilisation” that suggested “more modest improvement” or remained low.

The minutes stated that “almost all Committee members agreed that a change in the purchase program was not yet appropriate”, but Esther L George, president and of the Federal Reserve Bank of Kansas City, said the committee should make it more explicit to the market when tapering will occur, though this was voted down by other members.

Asian stockmarkets all fell following the minutes, which did little to dispel the fears around imminent tapering which have been weighing on markets recently.

However, European markets have opened higher this morning, with the FTSE 100 currently up 0.7 per cent at 6,432.