Fed needs better way to signal policy, officials say

Thu Sep 26, 2013 7:32pm EDT
 
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By Sakari Suoninen, Alistair Scrutton and Ann Saphir

FRANKFURT/STOCKHOLM/HOUGHTON, Michigan (Reuters) - The Federal Reserve confused financial markets over scaling back its bond buying, three top officials said on Thursday, with one arguing the central bank should link tapering to drops in the jobless rate and another calling for a broad remake of strategy.

Fed Board Governor Jeremy Stein said he would have been comfortable with acting at the September 17-18 meeting, and the decision to keep buying bonds at an $85 billion monthly pace had been, for him, a "close call".

"But whether we start in September or a bit later is not in itself the key issue - the difference in the overall amount of securities we buy will be modest," he told a monetary policy conference in Frankfurt.

"What is much more important is doing everything we can to ensure that this difficult transition is implemented in as transparent and predictable a manner as possible. On this front, I think it is safe to say that there may be room for improvement," he said in prepared remarks.

The Fed's decision to stand pat on bond buying stunned financial markets, which had anticipated it would begin to slowly reduce the program, signaling the beginning of the end to an unprecedented five years of ultra-easy monetary policy.

Federal Reserve Chairman Ben Bernanke explained the decision last week by pointing to the disappointing performance of the U.S. economy in the second half of 2013. It also noted headwinds from tighter U.S. fiscal policy, which could worsen as leaders in Washington fight over a deal to keep the government funded and lift the U.S. debt limit.

Investors are now focused on Fed meetings in October and December, although some economists say the central bank could hold fire until 2014 to make sure the U.S. economy has decisively regained cruising speed.

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The facade of the U.S. Federal Reserve building is reflected on wet marble during the early morning hours in Washington, July 31, 2013. REUTERS/Jonathan Ernst