USA: Little News from December FOMC Minutes
BOTTOM LINE: The December FOMC minutes revealed little on the Committee's thinking that was not already apparent after Chairman Bernanke's post-meeting press conference.
MAIN POINTS:
1. The FOMC's unexpected decision to taper asset purchases at the December meeting was supported by "most" members. "Many" members emphasized that the Committee should indicate that further reductions should be taken in measured steps, a point clearly communicated by the Chairman in the post-meeting press conference. (The baseline now appears to be $10bn per meeting.) On the margin, although most participants viewed the incremental costs of further asset purchases as relatively low, "it was noted that the risks to financial stability could be somewhat larger in the case of asset purchases than in the case of interest rate policy because purchases work in part by affecting term premiums and policymakers have less experience with term premium effects than with more conventional interest rate policy."
2. Regarding changes to the forward guidance, "a few" supported cutting the current unemployment threshold from 6.5% to 6.0%. However, "almost all" members could support the qualitative change to the forward guidance ultimately adopted by the Committee, expressing its expectation that the current target range for the fed funds rate would likely be appropriate "well past the time that the unemployment rate declines below 6.5%." That said, at least one member objected to the language as appearing too calendar-based.
3. The characterization of the growth outlook was more positive, with staff forecasts revised up both for the second half of 2013 and over the medium term. In particular, the recent budget agreement, and higher home and equity prices were mentioned as supporting the upgrade. Committee members noted that labor market conditions had improved in recent months, with the minutes specifically highlighting payroll gains of more than 200,000 in October and November. Debate continued on the extent to which the decline in labor force participation was cyclical vs. structural in nature.
4. There was no discussion of cutting the interest rate paid on excess reserves. The staff briefed the FOMC on testing to the fixed-rate, full-allotment reverse repo facility, and noted that in January they would likely recommend a continuation of the tests. The current testing period is authorized though January 29, 2014.