Minutes of the Federal Open Market Committee
(FOMC) meeting held last month indicate that the Fed is set to
end its monthly asset purchases in October.
Fed officials now believe that the economic activity was
rebounding in the second quarter after a large decline in GDP in
the first quarter of the year but they noted that monetary policy
needed to continue to "provide the favorable financial conditions
required to support the economic expansion".
At the same time, some of them were concerned about low volatility
in financial markets and increased risk taking by participants.
FOMC members acknowledged that inflation had moved up recently from
low levels seen earlier in the year, but said that it was
consistent with the committee's forecast of a gradual increase in
inflation over the medium term
The Fed has been scaling down the purchases this year and currently
buys bonds worth $35 billion a month, down from $85 billion a month
when QE3 was launched.
With an end-date for QE, the focus now shifts to the likely time of
the rate increase. After a strong jobs report last Thursday, the
possibility of an earlier-than-expected rate hike has gone up.
However, while the labor market is improving, wage pressures have
been missing so far. Per FOMC minutes "participants discussed the
prospects for wage increases to pick up as slack in the labor
market diminishes. Several noted that a return to growth in real
wages in line with productivity growth would provide welcome
support for household spending."
Do you expect a rate-hike later this year if the economy continues
to grow at the current pace?
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