Last week the Federal Reserve released the minutes from the Federal Open Market Committee (FOMC) meeting held June 17-18. Following its standard procedure the Fed released a statement immediately following the meeting announcing the major policy decisions, and released the minutes from the meeting, providing a more in-depth view of the deliberations, three weeks later.
It has become a foregone conclusion that the Fed’s asset purchasing program will end in October and the conversation has turned to when the Fed will begin increasing the federal funds rate. The minutes from the June meeting endorse that expectation but also remind that it’s not over until it’s over. The deliberations continue to include discussion of increasing the emphasis in Fed communications that the path of monetary accommodation is not on a preset course and will be determined by an ongoing assessment of a range of economic indicators: economic activity, labor market conditions, inflation and inflation expectations, and financial market conditions.
The October end to asset purchases is predicated on the economy proceeding according to expectations, but some meeting participants raised the prospect of economic growth not accelerating in the second half of the year as anticipated. Lower than desired inflation was also mentioned as a possible reason to take a more gradual approach to removing policy accommodation. Alternatively, faster economic growth than expected could motivate the committee to expedite the removal of accommodation.
The meeting also included extensive discussions on the appropriate timing of the first increase in the federal funds rate and its path after that point, policies regarding rolling over of maturing Treasury securities and reinvesting principal payments, as well as technical details of other policy tools available for the normalization of monetary policy (e.g., the interest rate on excess reserves, repurchase agreements, etc.).
Indications are that the “liftoff” for the federal funds rate will be in the third quarter of 2015 and discussions within the committee suggest that the other policy tools in the normalization process will be timed with that change. But before getting completely distracted by those possibilities, it’s worth remembering, as some meeting participants have, we still have to get to October and it’s not over until it’s over.