The minutes of the FOMC meeting held on January 24 and 25, released today show that the committee members were divided over the need and timing of additional asset purchases. “A few” participants felt that additional purchases should start in 2012 while “a number” of them remained open to the idea, if the economic outlook deteriorated. However one member felt that a preemptive tightening of monetary policy would be necessary before the end of 2014 to keep inflation close to their target.
After the meeting in January, the Fed had announced that it expects to hold rates at exceptionally low levels at least through late 2014. The minutes indicated that many members anticipated that unemployment will be above their estimates of longer term normal rate, while inflation will be at or below their longer-term objective of 2%, in late 2014.
Also for the first time after its January meeting, the Fed had released the details on its plan for short term interest rates, and a target for inflation, as a part of its initiative for more transparency in communications. The minutes show that many FOMC members suggested either dropping or simplifying the forward guidance and expressed concern over some reports regarding misinterpretation of forward guidance as a commitment about future policy direction.
Most participants expected that the Fed would begin selling agency securities “no earlier than 2015.” So, do not expect any shrinking of the Fed’s balance sheet (currently at about $2.9 trillion) in near future.
Recent economic data shows considerable improvement in employment situation and manufacturing growth and as such there may not actually be any need for Fed to launch additional round of easing anytime soon.
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