In the minutes from the January FOMC meeting, the discussion on the Fed’s asset purchases continued. There is no doubt that members disagree on the path for the programme going forward. In the December minutes, participants discussed the timing of an exit from QE but this time the discussion centred around the potential triggers for such an exit.
There is a general concern among FOMC members about the costs and risks of the Fed expanding the balance sheet as aggressively as is currently the case. It means that several in the FOMC want a flexible approach to the purchases as evident in the sentence below.
“Several participants emphasized that the Committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved”.
In the further discussion it is, however, clear that a majority in the Committee will not accept to end the asset purchases before they see the awaited “substantial improvement” in the labour market.
A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labour market had occurred. Several others argued that the potential costs of reducing or ending asset purchases too soon were also significant, or that asset purchases should continue until a substantial improvement in the labor market outlook had occurred. A few participants noted examples of past instances in which policymakers had prematurely removed accommodation, with adverse effects on economic growth, employment, and price stability.
Finally, there were a number of participants who considered the possibility of holding the purchased securities for a longer period of time than outlined in the Fed’s exit principles, set forward in the minutes from the June 2011 FOMC meeting.
We are likely to get more information on the future of QE at the March meeting, as the FOMC has scheduled a review of its asset purchases at that meeting.