Despite agreeing last month to a fourth round of quantitative easing (i.e. “QE4-Ever”), minutes from the Federal Open Market Committee’s (FOCM) Dec. 11-12 meeting show that Fed policymakers were split over the open-ended $85 billion a month bond purchasing strategy.
“Minutes of the Fed’s December policy meeting show that some of the 12 voting members thought the bond purchases would be warranted through the end of this year,” the Associated Press notes.
“Others felt the purchases should be slowed or stopped altogether before the end of 2013. This group was concerned that too much bond buying by the Fed might destabilize the economy,” the report adds.
What this means is that the Fed might actually pull the plug on its easing policies earlier than we had originally thought. It also means that the Fed could be looking in the opposite direction (i.e. “tightening”).
Sensing that the Fed might actually consider a more “austere” approach to the nation’s economic woes, markets did not respond well at all.
Here’s how the Dow reacted:
The Fed said it planned to keep a key interest rate low even after unemployment returns to normal levels (whenever that happens), the Fed announced in a statement after the meeting,
“Chairman Ben Bernanke warned at a news conference after last month’s meeting that no Fed actions could outweigh the damage that would result if the economy fell off the fiscal cliff,” the AP notes.
“Congress’ agreement this week was probably roughly in line with what Fed officials had expected,” the report adds. “As a result, they expect no changes soon to the Fed’s policies. Its federal funds rate, a benchmark for many consumer and business loans, has remained near zero since December 2008.”
Here are the key quotes from the December meeting (h/t Zero Hedge, emphases theirs):
While almost all members thought that the asset purchase program begun in September had been effective and supportive of growth, they also generally saw that the benefits of ongoing purchases were uncertain and that the potential costs could rise as the size of the balance sheet increased. Various members stressed the importance of a continuing assessment of labor market developments and reviews of the program’s efficacy and costs at upcoming FOMC meetings.
In considering the outlook for the labor market and the broader economy, a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases. Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted.
And here is the full FOCM report:
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