Many members of the Federal Open Market Committee believed that the committee needed to "proceed cautiously" in beginning to taper its asset purchases and signal that additional reductions in the pace of purchases would be done in "measured steps," according to minutes of the panel's December meeting, released Wednesday.
The FOMC announced in December that starting this month, it would purchase mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and it would purchase longer-term Treasuries at a pace of $40 billion per month rather than $45 billion per month.
Most committee members agreed "that the cumulative improvement in labor market conditions and the likelihood that the improvement would be sustained indicated that the Committee could appropriately begin to slow the pace of its asset purchases at this meeting," according to the minutes.
But members discussed a number of factors , "including their degree of confidence in prospects for sustained above-potential economic growth, continued improvement in labor market conditions, and a return of inflation to its mandate-consistent level over time." And some members were concerned that there could be an unintended tightening of financial conditions if a decrease in the pace of asset purchases "was misinterpreted as signaling that the Committee was likely to withdraw policy accommodation more quickly than had been anticipated."
Of the participants at the meeting who were inclined to start reducing the pace of asset purchases at the December meeting, many "favored a modest initial reduction accompanied by guidance indicating that decisions regarding future reductions would depend on economic and financial developments as well as the efficacy and costs of purchases," Others wanted a larger reduction in purchases at that time and a relatively quick end to the asset purchasing program, the minutes said.
A few participants proposed that the FOMC "lay out, either at this meeting or subsequently, a more deterministic path for winding
down the program or that it announce a fixed amount of additional purchases and an expected completion date, thereby reducing uncertainty about the trajectory of the purchase program."
Although the FOMC decided to start reducing the pace of its asset purchases, it emphasized that its holdings of longer-term securities would still be increasing. "The committee also reiterated that it will continue its asset purchases, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability," the minutes said.
Voting against the decision was Federal Reserve Bank of Boston President Eric Rosengren, who thought the decision to begin tapering was "premature," according to the minutes.
"In his view, with the unemployment rate still elevated and the inflation rate well below the committee's longer-run objective of 2%, changes in the asset purchase program should be postponed until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate," the minutes said. "He saw the costs of delaying action at this meeting as likely to be small relative to the gains from promoting a faster return of both elements of the Committee's dual mandate to their longer-run objectives."
