Fed unlikely to slow stimulus pullback

Federal Reserve policymakers were uncommonly united in their decision last month to further pare back the central bank's bond-buying program and set a high bar for veering from a plan to steadily reduce the stimulus this year, according to minutes of the Fed's Jan. 28-29 meeting.

Despite a marked slowdown in job growth in December, "all" Fed policymakers "agreed that cumulative improvement in labor market conditions and the likelihood of continuing improvement" warranted a further reduction in bond purchases, the minutes said.

The unanimity was rare for a Fed policy-making committee that often has disagreed sharply over whether the benefits of the bond-buying continue to outweigh risks such as eventual high inflation and asset bubbles. The agreement to scale back the bond purchases was the first unanimous vote since 2011.

MINUTES: Record of the Fed's January meeting

The bond-buying program is intended to hold down long-term interest rates, spurring home purchases and business investment.

At its Jan. 28-29 meeting, the Fed agreed to trim its purchases of Treasury bonds and mortgage-backed to $65 billion a month from $75 billion. Fed policymakers took a first step toward tapering the program in January, reducing the bond-buying from $85 billion a month.

The economy added only 75,000 jobs in December, far below the 200,000-plus monthly pace from August through November. But many economists cited extreme winter weather that kept shoppers at home. And the unemployment rate fell sharply, to 6.7% from 7%.

Fed officials have said they will pause the tapering if the economy sours. But at last month's meeting "several" policymakers "argued that in the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor of continuing to reduce the pace of purchases by a total of $10 billion" at each meeting.

"A number" of policymakers said the Fed could alter its plan "if the economy deviated substantially from its expected path."

Fed officials also agreed that with the unemployment rate nearing the Fed's 6.5% threshold, "it would soon be appropriate" for the Fed to adjust its guidance about short-term interest rates. The Fed has said it will keep its short-term interest rate near zero at least until unemployment reaches 6.5%, but recently said it will maintain that low rate "well past" that time.

At the meeting, some Fed officials favored lowering the threshold. But others said the Fed should simply clarify the factors that would cause it to maintain the near-zero rate, such as inflation persistently below the Fed's 2% target. Some alternatively wanted to note that risks, such as asset bubbles, could prompt the Fed to raise its benchmark rate.

Most Fed officials have said they expect the first rate hike in 2015. But last month "a few" said it might be appropriate to increase the rate "relatively soon," with "a couple" noting that standard policy could call for an increase before the middle of this year. But other officials said standard policy shouldn't apply because of several factors, including the "lingering effects of the (2008) financial crisis."

January's meeting was Ben Bernanke's last as chairman. Janet Yellen, formerly vice chair, became chair Feb. 3.

Then-Fed chief Ben Bernanke speaking at the Brookings Institution in Washington on Jan. 16.(Photo11: Manuel Balce Ceneta, AP)