The US Federal Reserve was confident unemployment would continue to fall even if it cut its huge monetary stimulus, according to the minutes released Wednesday of the December policy meeting.
“Most members agreed that the cumulative improvement in labor market conditions and the likelihood that the improvement would be sustained indicated that the Committee could appropriately begin to slow the pace of its asset purchases at the meeting,” said the minutes of the Federal Open Market Committee’s monetary policy meeting.
“Most had become more confident” that labor market conditions would continue to improve, the minutes said.
The FOMC decided at its December 17-18 meeting to begin tapering the stimulus, reducing the central bank’s asset purchases by $10 billion to $75 billion a month beginning in January.
But many participants said the Fed “should proceed cautiously” in reducing the easy-money program that has kept long-term interest rates low, supporting growth and fueling stock market gains.
Some officials expressed concern about the possibility of an “unintended tightening” of financial conditions if the reduction in asset purchases was misinterpreted as a sign the Fed would likely withdraw accommodative policy support more quickly than had been expected.
Since the prior FOMC meeting in October, the Fed saw the US unemployment rate drop from 7.3 percent to a five-year low of 7.0 percent, and solid job creation that added 203,000 net new positions in November.
In viewing the US economy since the October meeting, Fed officials decided that, supported by “appropriate” policy accommodation, economic growth would strengthen and the jobless rate would decline toward levels it considers consistent with its dual mandate of maximum employment and price stability.
Members agreed that though inflation was running below the Fed’s 2.0 percent longer-term objective, over time inflation would return to that level supported by stable inflation expectations and stronger economic activity.
The participants stressed the need to emphasize that the pace of the reduction in asset purchases remained dependent on the panel’s outlook for the job market and inflation as well as the effectiveness and costs of the program. AFP