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Fed Releases Detailed Transcripts of 2013 Policy Meetings

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01/11/2019 | 10:20am EDT

By Nick Timiraos

Transcripts released by the Federal Reserve on Friday revealed the extent of then-governor Jerome Powell's misgivings about the central bank's 2013 stimulus program of bond purchases.

Mr. Powell, who now serves as Fed chairman, joined the central bank as a governor in 2012.

Several officials, including Mr. Powell, were wary of continuing a bond-buying program that, unlike earlier versions, had no set end point.

Mr. Powell had voted in 2012 to begin the purchases but with others raised concerns that the Fed's monthly purchases of $85 billion in Treasury and mortgage-backed securities could encourage investors to take too many risks that might later prove destabilizing to the economy.

Ben Bernanke, then in his final year as Fed chairman, faced a delicate balancing act in placating those officials' worries while others feared ending the program too soon would keep policy too tight at a time when the unemployment rate exceeded 7%.

Mr. Bernanke's comments at a congressional hearing in May 2013 about a potential slowdown, or tapering, of the bond purchases confused investors. It led markets to believe, erroneously, that the Fed was also preparing to raise interest rates from near zero much sooner than they had anticipated.

Yields on the 10-year Treasury rose from 1.94% on May 21, the day before Mr. Bernanke's comments, to 2.98% in September. Money flowed out of emerging markets. The incident was dubbed the "taper tantrum."

The Fed ultimately waited until December of that year to initiate its plan to slow down the purchases.

Mr. Powell later said the economy didn't appear to suffer from some of the risks he and others raised about the bond-buying program.

"The tools we that we used in the crisis" after cutting short-term rates to zero "generally worked," Mr. Powell said during a question-and-answer session with Mr. Bernanke and former Fed Chairwoman Janet Yellen in Atlanta last week.

"The concerns people raised -- and it was appropriate to raise them -- they didn't really bear fruit," he said. "We didn't see high inflation. We didn't see asset bubbles."

The Fed stopped adding to its portfolio in 2014 and kept its holdings steady until 2017, when it began shrinking the holdings by allowing more bonds to mature without replacing them. The holdings have fallen from $4.5 trillion to around $4 trillion.

While the Fed officials involved have recounted the events, the transcripts released Friday, provide the first public disclosure of the verbatim discussions held at the central bank's 2013 policy meetings, identifying by name which participants made which comments.

Write to Nick Timiraos at Nick.Timiraos@wsj.com

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