WASHINGTON (8/21/14)--Unemployment and inflation are nearing the levels at which the Federal Open Market Committee (FOMC) has said could lead to changes in its monetary policy, but the majority of the group continues to believe interest rates should remain at their near-zero levels, according to the July 29-30 meeting minutes, released Wednesday by the Federal Reserve.
While the committee did not come to consensus on the overall health of the job market, consistent with previous policy decisions, the FOMC again reduced the number of asset purchases by $10 billion during the meeting.
The quantitative easing program, which the Fed has used over the past few years to pump money into the lending market, is expected to end in October.
Despite the looming end to the stimulus program, however, many still expect the Fed to keep interest rates at their near-zero levels well into 2015.
"We believe the Fed will begin normalizing interest rates next fall and allow the balance sheet to begin deflating shortly after," said Ryan Sweet, Moody's analyst (Economy.com Aug. 20). "The practice of 'gradualism' in monetary policy, whereby changes to the policy rate during an easing or tightening cycle tend to come in a series of small and relatively predictable steps, will characterize the initial stage of the Fed's tightening cycle. However, policymakers may have to get more aggressive quickly."
Philadelphia Fed President Charles Plosser, the lone dissenter in a 9-1 vote to maintain the policy of slowly peeling back stimulus money from the economy, believes that the rest of the committee has not adequately acknowledged the full improvements the economy has made of late.
If the economy continues to strengthen and the FOMC has to raise rates earlier than is now widely expected, Plosser said, such a move could volatilely disrupt financial markets and the economy in general.
The next FOMC meeting is scheduled for Sept. 16-17.