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Fed seeks clarity on interest rate

– Federal Reserve policymakers plan to soon change their guidance for the path of interest rates as unemployment declines toward a threshold for considering an increase in borrowing costs, minutes of their January meeting showed.

“Participants agreed that, with the unemployment rate approaching 6.5 percent, it would soon be appropriate for the Committee to change its forward guidance in order to provide information about its decisions regarding the federal funds rate after that threshold was crossed,” according to the record of the meeting, the final one led by Ben Bernanke before the end of his term as central bank chairman.

“Several” Fed policymakers also said that in “the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor of continuing to reduce the pace” of the Fed’s bond purchases $10 billion at each meeting.

Central bankers are seeking to provide clarity on their plans for continuing to support the economy, both with low interest rates and dwindling bond purchases, after unemployment dropped last month to 6.6 percent, the lowest in more than five years.

The minutes of the Federal Open Market Committee meeting show Fed officials divided on how to clarify their guidance.

Several participants said that risks to financial stability should be included in their statement, and others argued the guidance should “give greater emphasis” to keeping rates low if inflation remains below 2 percent.

While the minutes showed a unanimous vote on the committee’s policy statement, policy makers disagree on the timing of the first interest-rate increase.

“A few” officials “raised the possibility that it might be appropriate to increase the federal funds rate relatively soon,” according to the minutes.

The committee showed more consensus over how to proceed with reducing bond purchases.

Since succeeding Bernanke on Feb. 3, Janet Yellen has pledged to maintain his plan for measured cuts in purchases, even amid weaker-than-forecast payroll growth and signs harsh winter weather has slowed retailing, manufacturing and home construction.

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