Fed may keep short-term rates low long after bond-buying pullback

WASHINGTON -- Federal Reserve policymakers, expecting to pull back on their bond-buying stimulus in the “coming months,” are considering keeping short-term interest rates quite low for quite a while, among other options.

An account of the Fed’s meeting last month, released Wednesday with the usual three-week lag, shows that central bank officials saw no major change in the economic path of the country from their previous session in September when they surprised markets by not yet reducing the Fed’s $85 billion in monthly bond purchases.


The minutes leave open the possibility that the Fed policymakers could start cutting back on the bond buying at their last scheduled meeting of the year, set for Dec. 17-18. Analysts, however, generally think the Fed probably will wait until January or March before making any such move, given the economy’s mixed signals and uncertain outlook.

On the whole, economic data since the Fed’s Oct. 29-30 meeting have been somewhat brighter. Payroll-job gains were surprisingly strong in October, despite the partial federal government shutdown and budget standoff in Washington, and the economy overall grew at a faster-than-expected pace in the third quarter. However, growth this quarter is looking considerably weaker, and the housing market has lost some spark since mortgage rates rose in the summer.

At their October meeting, Fed policymakers decided, as they did in September, to await more economic data before taking action. But officials also engaged in a wide-ranging discussion of their communication policies and how they might continue to stimulate the economy even after they have begun reducing the bond purchases.

Fed officials, for example, discussed ways of strengthening their guidance on the path of the benchmark short-term interest rate, the central bank’s conventional monetary policy lever. That rate has been near zero since late 2008, and policymakers are considering ways to reinforce the thinking to markets that this overnight bank-lending rate could remain unusually low even after it has moved off the bottom.

Fed policy statements have said the central bank would keep the so-called federal funds rate near zero at least as long as the jobless rate remained above 6.5%, assuming inflation remains under control. In a speech Tuesday night in Washington, Fed Chairman Ben S. Bernanke noted that the jobless-rate threshold would mark the time when policymakers would start considering a rate increase, suggesting that it would not be the point when short-term actually rates went up.


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