MT Insider: FOMC Minutes - September Decision Was Close Call, Expect Tapering To End by Mid-2014
The Federal Open Market Committee Minutes (FOMC) indicated that the decision in September to taper was a "close call."
That being said, tapering is not off the table with the committee reiterating the possibility of reducing the rate of purchases in December and an expected completion date by mid-2014.
"Most participants viewed their economic projections as broadly consistent with a slowing in the pace of the Committee's purchases of longer-term securities this year, and the completion of the program in mid-2014," according to the minutes.
The minutes from the FOMC meeting were particularly interesting, given the Committee's unexpected decision not to taper in September.
In fact, members were well aware that investors would be surprised by their decision, but in light of inflation data "...indicated that they preferred to see more evidence of continuing improvement."
Analysts were also looking for more color on how forward guidance might be enhanced in the future, which was alluded to by Chairman Ben Bernanke in the post-FOMC press conference.
The Committee acknowledged that the financial markets had already baked in a reduction in purchases for September. As such, "concerns were raised about the FOMC's effectiveness of communication if the Committee did not take that step [to not taper]."
This suggests that members are likely re-evaluating the level of communication from the Fed, which may have led to less effective monetary policy initiatives in the past.
Separately, those members in favor of tightening cited risk management considerations and a "meaningful cumulative progress in labor market conditions since the program began...[which provides support that] the credibility of the committee would best be serviced by announcing a downward adjustment."
Lastly, as it relates to the current state of the government shutdown, the Committee did address concerns regarding fiscal policy.
"A number of significant risks remained, including those related to the potential economic effects of the sizable increases in interest rates since the Spring, ongoing fiscal drag, and the possible fall out of near term fiscal debates."
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