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Fed Minutes: Some Participants Felt Fed Will Need to Explain

Federal Reserve officials expressed concern about how well the central bank was conveying its policy intentions to a jittery investing public, according to minutes from the most recent meeting.

The June FOMC session was significant in that Chairman Ben Bernanke followed it by telling the media that the Fed was prepared to start winding down its bond-buying program by the end of 2013.

That revelation, in a news conference, rattled markets, sending stocks on a 7 percent decline and interest rates surging higher.

The minutes indicated a clear concern from committee members, who gave marching orders to Bernanke about what to say at the media gathering.

“At the conclusion of the discussion, most participants thought that the Chairman, during his postmeeting press conference, should describe a likely path for asset purchases in coming quarters that was conditional on economic outcomes broadly in line with the Committee’s expectations,” the minutes said.

“In addition, he would make clear that decisions about asset purchases and other policy tools would continue to be dependent on the Committee’s ongoing assessment of the economic outlook.”

Financial markets reacted strongly to the remark, triggering the worst performance for stocks all year.

The minutes indicated an in-depth discussion about how financial markets were reacting to the quantitative easing measures, which entail $85 billion a month in purchases of Treasurys and mortgage-backed securities.

“A few stated their view that a prolonged period of low interest rates would encourage investors to take on excessive credit or interest rate risk and would distort some asset prices,” the minutes said. “However, others suggested that the recent rise in rates might have reduced such incentives.”

FOMC members showed a strong inclination to orchestrate Bernanke’s comments to the media. The news conferences are a relatively new wrinkle in Fed policy during which the chairman addresses reporters at every other meeting.

Members directed Bernanke to detail “a likely path” for a pullback in the asset purchases that would be dependent on economic data continuing to improve.

In its economic review, the committee said growth is increasing at “a moderate pace,” language consistent with previous statements. There was some concern that higher mortgage rates would derail the housing recovery, but mostly agreement that things were continuing apace.

_ By CNBC’s Jeff Cox. 
 

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