Follow US Investment Immigration and stay updated on US Economic Trends: According to news from Beijing on the early morning of October 10, the Federal Reserve released the minutes of its most recent monetary policy meeting on Wednesday. The records show that during the September meeting of the Federal Open Market Committee (FOMC), the Fed's policy-making body, the vast majority of participants believed it would be appropriate to begin reducing the scale of economic stimulus programs before the end of 2013, although the committee members ultimately decided to take no action for the time being.
The minutes indicate that during the meeting held from September 16 to 17, most participating Fed officials believed it would be appropriate to begin reducing the $85 billion monthly bond purchase program within 2013 and to conclude such purchases entirely by mid-2014. A few Fed members did not fully agree, but they were in the minority.
The minutes state that "one or two" Fed officials believed that the first reduction in the purchase program should not occur before 2014, and one member believed the program should continue beyond June 2014. Conversely, "one or two" members hoped to end the stimulus program at a faster pace.
Fed Chairman Ben Bernanke hinted in June that the asset purchase program would be scaled back within 2013. Therefore, when the Fed announced at its September policy meeting that it would not begin this process, the market was generally caught off guard.
According to the meeting minutes, many members considered this decision a "relatively subtle" choice. The minutes state that the majority of members who supported delaying the reduction in purchase scale believed that tapering now would lead to "additional, unnecessary tightening of financial market conditions." They argued that financial markets might interpret this reduction as "the Fed's willingness to take the first step toward exiting highly accommodative monetary policy, regardless of recent mixed data."
These Fed officials also expressed concern that higher interest rates could slow down the broader economy.
On the other hand, members who supported an immediate start to tapering asked when the data would show a clear improvement in the economic situation. The minutes noted, "If the Fed does not reduce purchases in this situation, it might be difficult to explain the decision to taper in the coming months in the absence of significantly stronger economic data and without a quick resolution to the uncertainty surrounding federal fiscal issues."
In the final vote of the meeting, all voting Fed officials except for one supported making no adjustments to the bond purchase program at that time.
The next policy meeting of the Federal Open Market Committee will be held on October 29 and 30.
Since there is no press conference scheduled after the October policy meeting, and given the unclear prospects of a government shutdown, economists generally expect that the Fed will not decide to reduce the scale of bond purchases at the October meeting. They generally believe that December is a more likely timeframe.
President Obama will announce the nomination of Janet Yellen as Vice Chair of the Federal Reserve later on Wednesday, hoping she will succeed the outgoing Bernanke to lead the Fed. The market also believes that the confirmation hearing for Janet Yellen, expected to take place in the coming weeks, will reveal more about the Fed's decision-making process.