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FOMC Minutes: Job Market Key to Slowing QE Program
WASHINGTON (1/9/14)--The Federal Reserve's policymaking body, the Federal Open Market Committee, acknowledged an improving economic outlook when it decided to reduce its monthly asset-bond purchases, according to the FOMC minutes released Wednesday.

Analysts at Moody's said there was broad support for tapering the quantitative easing (QE) program (Economy.com Jan. 8). At its Dec. 18 meeting, the FOMC voted for a reduction to $75 billion per month from $85 billion.

Participants stressed that QE was not on a preset course and would be determined by job market and inflation. Moody's analysts said the Fed will call for a $10 billion-per-month reduction at each meeting.

"Most participants judged the marginal costs of asset purchases as unlikely to be sufficient, relative to their marginal benefits, to justify ending the purchases now or relatively soon," according to the minutes.

Some officials "expressed the view that the criterion of substantial improvement in the outlook for the labor market was likely to be met in the coming year if the economy evolved as expected," the minutes said, noting that other indicators had shown less consistent progress toward full market recovery.

In January, it will purchase $35 billion per month in agency mortgage-backed securities rather than $40 billion. The Fed also decided to buy $40 billion per month in long-term Treasuries rather than $45 billion. The Fed is likely going to continue to reduce both MBS and Treasuries at a similar pace, ending QE by the end of this year, according to Moody's.

Eric Rosengren dissented at the December meeting because he viewed the decision to slow the pace of asset purchases as premature. "In his view, with the unemployment rate still elevated and the inflation rate well below the Committee's longer-run objective of 2 percent, changes in the asset purchase program should be postponed," the minutes said.

The committee's schedule for 2014 is:
  • Jan. 28-29;
  • March 18-19;
  • April 29-30;
  • June 17-18;
  • July 29-30;
  • Sept. 16-17;
  • Oct. 28-29; and
  • Dec. 16-17.


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