WASHINGTON – The Federal Reserve agreed last month to modestly reduce its bond purchases because of improvements in the job market that many Fed members believed would be sustained.
Many participants called the job gains meaningful, according to minutes of the Dec. 18-19 meeting that were released Wednesday.
Still, the minutes showed that some participants worried that investors might misread the move as a step toward raising the Fed’s key short-term interest rate.
In response, the Fed said it plans to keep its short-term rate low well past the time the unemployment rate dropped below 6.5 percent, as long as inflation stayed low.
Some members wanted to lower that unemployment threshold to 6 percent. But the majority opposed doing so. They favored assessing a range of measures of the job market – not just the unemployment rate – in making any policy changes.
Analysts said the improving job market and better overall economic conditions apparently convinced the Fed that they could take a cautious first step toward trimming the bond purchases.
The minutes revealed a growing confidence in the economic outlook among members and a broad expectation for stronger growth as fiscal restraint diminishes, said James Marple, senior economist at TD Economics.
The economy has added an average of 200,000 jobs a month from August through November. And the unemployment rate has reached a five-year low of 7 percent.
On Friday, the government will release its employment report for December. Payroll provider ADP said businesses added 238,000 jobs in December, up slightly from 229,000 in the previous month.
Last month the Fed said it would reduce its monthly bond purchases from $85 billion to $75 billion starting this month. And it said it expected to further reduce the bond purchases in steps at upcoming meetings, if the economy and the job market continue improving.
The bond purchases are intended to keep long-term rates low, and encourage more borrowing and spending.