Politics & Money

FOMC shows willingness to taper asset purchases

The most recent Federal Open Market Committee minutes from the Federal Reserve shows a number of participants expressed a willingness to begin reducing quantitative easing by June as long as the underlying economic data supports such a decision.

However, members of the FOMC disagreed about how much the economy would have to improve and what evidence would be necessary for the likelihood of that outcome, according to the May minutes.

The majority of the members agreed to remain committed to monthly purchases of agency mortgage-backed securities.

The dissenting vote was Esther George. George continued to view monetary policy as overly accommodative and a risk to long-term sustainable economic growth.

The FOMC statement said George expressed concern that the stance of policy might be fostering imbalances and excessive risk-taking in some financial markets and institutions.

“Most participants emphasized that it was important for the Committee to be prepared to adjust the pace of its purchases up or down as needed to align the degree of policy accommodation with changes in the outlook for the labor market and inflation as well as the extent of progress toward the Committee’s economic objectives,” the FOMC stated. 

The Fed’s monthly MBS purchases remain a key part of the housing recovery envisioned by Ben Bernanke, Federal Reserve Chairman, in past speeches. The committee agreed to continue buying MBS at a pace of $40 billion per month along with longer-term Treasury securities at a pace of $45 billion per month.

Despite the FOMC’s decision to start talking about tapering off purchasing assets, Bernanke has made it clear that until inflation and unemployment improve the central bank will stay committed to its accommodation policy.

bswanson@housingwire.com 

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