July 09, 2014

FOMC minutes: Tapering likely to end this fall

July 10, 2014 – Minutes from the Federal Open Market Committee's June policy meeting indicate – not surprisingly – that the Federal Reserve will likely complete its tapering of asset purchases in October.

The Fed has been reducing its purchases of agency mortgage-backed securities and Treasuries by a combined $10 billion a month since it began tapering its current round of quantitative easing. The current pace of asset purchases is $35 billion a month.

Curt Long

NAFCU Senior Economist Curt Long said the FOMC is due to meet in July, September, October and December, but the June minutes suggest that FOMC members favored a reduction of $10 billion in purchases after the July and September meetings and $15 billion in October.

"Whether the tapering of QE3 ends in October or December has been a point of speculation for a while," Long said. "Ultimately, the FOMC determined that as long as the economy continues to show progress, ending the program in October would be prudent to head off further speculation about why they might have left it until December."

Much of the interest has been fueled by the view that the October vs. December decision on tapering would be a tool used by the committee to indicate the status of the recovery and, potentially, whether a rise in short-term rates would come sooner or later.

Long said the committee downplayed that aspect as well, stating that the tapering end date would have "no consequences for the eventual decision about the timing of the first increase of the federal funds rate."

The federal funds target rate remains at a range of 0 to 0.25 percent.