The Federal Reserve Board released the minutes to its July 30-31 Federal Open Market Committee (FOMC) meeting. The minutes provide more detail regarding the internal debates that led to the statement that was released at the conclusion of the FOMC meeting. In particular, analysts look to the minutes for clues about future monetary policy actions, and in this case, to decipher when the Fed plans to “taper” or slow down its asset purchases. This could come as soon as the next meeting, which is scheduled for September 17-18.
With that said, while the minutes do illustrate the healthy debate on when to begin slowing down its asset purchases, they do not provide the clarity that some might be looking for. Specifically, the minutes suggest that participants were mostly in-line with curtailing asset purchases later this year and possibly ending all purchases by the middle of the 2014. The decision on timing for both would be depend on what the economic data suggest, with some participants worried about suggesting dates at all. In general, there was cautious optimism about a pickup in activity in the second half of the year, including for manufacturing.
Esther George, the president of the Kansas City Fed and a current voting member of the FOMC, was the lone dissenter to the statement that was released. Regarding her no vote, the minutes say, “… in the view of view of the one member who dissented from the policy statement, the improvement in the labor market was an important reason for calling for a more explicit statement from the Committee that asset purchases would be reduced in the near future.”
In the end, the statement was less clear about the end date for asset purchases. Instead, it reiterated the fact that monetary policy would be “highly accommodative” until the unemployment rate reaches 6.5 percent and/or when long-term inflationary expectations exceed 2.5 percent. That suggests that short-term interest rates will remain near zero until that point, regardless of when asset purchases are reduced or end.
Chad Moutray is the chief economist, National Association of Manufacturers.
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