FOMC Minutes Discuss Means of Exiting Quantitative Easing, Not Timing

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The FOMC has released the minutes of its April 29 to 30 meeting. We would caution that these minutes cover the announcement by the Federal Reserve from April 30, and we would also stress that many Fed presidents and Fed Chair Janet Yellen herself have spoken publicly since then. We have also noted how three different Fed presidents have also spoken about the possibility that interest rates could be hiked sooner than expected.

The minutes show that Fed members did discuss the rate hike process, but they also did not discuss any specific time frame on the matter. Many of the comments seem the same as from the March meeting. Exceptions were discussions about weakness in China and tensions from Russia and Ukraine. The bulk of the discussion seemed to be around the plans for the fed’s balance sheet rather than endless rate hikes.

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This goes on and on, but here is what the Minutes show regarding an exit to the quantitative easing and how to eliminate some of the accommodation:

Participants generally agreed that starting to consider the options for normalization at this meeting was prudent, as it would help the Committee to make decisions about approaches to policy normalization and to communicate its plans to the public well before the first steps in normalizing policy become appropriate. Early communication, in turn, would enhance the clarity and credibility of monetary policy and help promote the achievement of the Committee’s statutory objectives. It was emphasized that the tools available to the Committee will allow it to reduce policy accommodation when doing so becomes appropriate. Participants considered how various combinations of tools could have different implications for the degree of control over short-term interest rates, for the Federal Reserve’s balance sheet and remittances to the Treasury, for the functioning of the federal funds market, and for financial stability in both normal times and in periods of stress. Because the Federal Reserve has not previously tightened the stance of policy while holding a large balance sheet, most participants judged that the Committee should consider a range of options and be prepared to adjust the mix of its policy tools as warranted. Participants generally favored the further testing of various tools, including the TDF, to better assess their operational readiness and effectiveness. No decisions regarding policy normalization were taken; participants requested additional analysis from the staff and agreed that it would be helpful to continue to review these issues at upcoming meetings.

Again, three different Fed presidents discussed the possibility of rate hikes sooner than expected in the past few trading days. It seems likely that this will only take place after they have exited bond buying rather than the current tapered amount of monthly bond buying now.