FOMC Discussed Normalizing Policy, Won’t Begin Soon: Minutes
2014-05-21 18:00:11.715 GMT
By Alexandra Harris and Vivien Lou Chen
May 21 (Bloomberg) -- Participants favored further testing
of various tools, including term-deposit facility (TDF), to
better assess their “operational readiness and effectiveness,”
FOMC’s April 29-30 minutes show.
* Discussion didn’t imply normalization “would necessarily
begin sometime soon”; no decisions were taken as
participants requested additional analysis
* Staff presentation outlined several approaches to raising
short-term interest rates “when it becomes appropriate to
do so”
* Approaches differ in terms of combination of policy
tools, such as IOER, O/N RRP, term reverse repo
agreements and TDF
* Presentation also included potential implications of
each approach for financial intermediation and financial
markets, including fed funds market
* Also discussed “possible implications” for financial
stability
* Participants considered how various combinations of tools
could have different implications for “degree of control”
over short-term interest rates
* Also considered effects on Fed’s balance sheet,
remittances to Treasury, the functioning of fed funds
market and financial stability during normal times and
periods of stress
* NOTE: Fed sold $27.6b in 7-day term deposit facility to 35
participants at May 19 operation; RRP drew $220.7b from 60
bidder’s in today’s operation
* Some participants said it was too early to confirm that
“bounceback” in activity would put economy on path of
sustained above-trend growth
* A number pointed to possible downside risk to growth
from slowing housing sector or slowdown in China and
tensions in Russia and Ukraine
* Most expect inflation to return to 2% in next few yrs,
others said they were concerned that it could occur more
gradually
* Participants said business contacts in many parts of U.S.
were generally optimistic; they also discussed range of
research on amount of slack remaining in labor market
* While number said there’s signs of more slack than
indicated by unemployment rate, others said labor
markets were tight in their districts
* Most participants saw range of factors affecting housing
market, including higher home prices and construction
“bottlenecks”
* FOMC participants generally didn’t see imbalances that posed
near-term risks to financial system and economy, saw signs
of potential risks such as declining credit spreads and low
level of expected volatility
* FOMC said changes in forward guidances at March meeting had
been “well understood” by investors; number emphasized
importance of communicating more clearly about policy
intentions as rate liftoff approaches
* Few said more clarity about reaction function could be
important in event that more rapid rise in fed funds
rate is needed
* A number suggested it would be useful to provide more
information on how long FOMC would continue to roll over
maturing Treasuries and reinvest proceeds on agency debt
and MBS
* FOMC members said they’re likely to keep tapering QE
purchases at future meetings as long as economy develops as
anticipated, according to minutes of Fed’s April 29-30
meeting.
* Members reiterated that pace of purchases was not on preset
course, would depend on outlook for labor market and
inflation as well as costs/efficacy of QE program; agreed no
changes to fed funds rate or forward guidance was warranted
* They saw need to monitor inflation carefully due to
concerns about persistent low levels
* NOTE: FOMC members are defined as all members of Fed board
in Washington, NY Fed president, and 4 of remaining 11
regional bank presidents who vote; non-voting regional Fed
presidents fall into category of FOMC participants
For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>
To contact the reporters on this story:
Alexandra Harris in New York at +1-212-617-3354 or
aharris48@bloomberg.net;
Vivien Lou Chen in San Francisco at +1-415-617-7078 or
vchen1@bloomberg.net
To contact the editors responsible for this story:
James Holloway at +1-212-617-4454 or
jholloway8@bloomberg.net
Greg Chang
2014-05-21 18:00:11.715 GMT
By Alexandra Harris and Vivien Lou Chen
May 21 (Bloomberg) -- Participants favored further testing
of various tools, including term-deposit facility (TDF), to
better assess their “operational readiness and effectiveness,”
FOMC’s April 29-30 minutes show.
* Discussion didn’t imply normalization “would necessarily
begin sometime soon”; no decisions were taken as
participants requested additional analysis
* Staff presentation outlined several approaches to raising
short-term interest rates “when it becomes appropriate to
do so”
* Approaches differ in terms of combination of policy
tools, such as IOER, O/N RRP, term reverse repo
agreements and TDF
* Presentation also included potential implications of
each approach for financial intermediation and financial
markets, including fed funds market
* Also discussed “possible implications” for financial
stability
* Participants considered how various combinations of tools
could have different implications for “degree of control”
over short-term interest rates
* Also considered effects on Fed’s balance sheet,
remittances to Treasury, the functioning of fed funds
market and financial stability during normal times and
periods of stress
* NOTE: Fed sold $27.6b in 7-day term deposit facility to 35
participants at May 19 operation; RRP drew $220.7b from 60
bidder’s in today’s operation
* Some participants said it was too early to confirm that
“bounceback” in activity would put economy on path of
sustained above-trend growth
* A number pointed to possible downside risk to growth
from slowing housing sector or slowdown in China and
tensions in Russia and Ukraine
* Most expect inflation to return to 2% in next few yrs,
others said they were concerned that it could occur more
gradually
* Participants said business contacts in many parts of U.S.
were generally optimistic; they also discussed range of
research on amount of slack remaining in labor market
* While number said there’s signs of more slack than
indicated by unemployment rate, others said labor
markets were tight in their districts
* Most participants saw range of factors affecting housing
market, including higher home prices and construction
“bottlenecks”
* FOMC participants generally didn’t see imbalances that posed
near-term risks to financial system and economy, saw signs
of potential risks such as declining credit spreads and low
level of expected volatility
* FOMC said changes in forward guidances at March meeting had
been “well understood” by investors; number emphasized
importance of communicating more clearly about policy
intentions as rate liftoff approaches
* Few said more clarity about reaction function could be
important in event that more rapid rise in fed funds
rate is needed
* A number suggested it would be useful to provide more
information on how long FOMC would continue to roll over
maturing Treasuries and reinvest proceeds on agency debt
and MBS
* FOMC members said they’re likely to keep tapering QE
purchases at future meetings as long as economy develops as
anticipated, according to minutes of Fed’s April 29-30
meeting.
* Members reiterated that pace of purchases was not on preset
course, would depend on outlook for labor market and
inflation as well as costs/efficacy of QE program; agreed no
changes to fed funds rate or forward guidance was warranted
* They saw need to monitor inflation carefully due to
concerns about persistent low levels
* NOTE: FOMC members are defined as all members of Fed board
in Washington, NY Fed president, and 4 of remaining 11
regional bank presidents who vote; non-voting regional Fed
presidents fall into category of FOMC participants
For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>
To contact the reporters on this story:
Alexandra Harris in New York at +1-212-617-3354 or
aharris48@bloomberg.net;
Vivien Lou Chen in San Francisco at +1-415-617-7078 or
vchen1@bloomberg.net
To contact the editors responsible for this story:
James Holloway at +1-212-617-4454 or
jholloway8@bloomberg.net
Greg Chang