Federal Open Market Committee members continued to believe that if the economy continues to develop as anticipated, additional reductions in the pace of asset purchases would be made in "measured steps," according to the minutes of the panel's January meeting, released Wednesday.
But committee members also noted "that the pace of asset purchases was not on a preset course and would remain contingent on the committee's outlook for the labor market and inflation as well as its assessment of the efficacy and costs of purchases," according to the minutes.
All FOMC members agreed in January that it was appropriate to make another reduction in the pace of its asset purchases in light of the cumulative improvement in labor market conditions and the likelihood of continuing improvement. The committee announced after the January meeting that starting this month, it would purchase mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and it would purchase longer-term Treasuries at a pace of $35 billion per month rather than $40 billion per month.
The FOMC emphasized that its holdings of longer-term securities would still be increasing. "The committee also reiterated that it would 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.
Several meeting participants noted that the FOMC's December decision to begin tapering asset purchases "had not resulted in an adverse market reaction." One participant was concerned "that longer-term interest rates could rise sharply if market participants' expectations of future monetary policy came to deviate from those of policymakers," the minutes said. A couple other participants "argued that the current highly accommodative stance of monetary policy could lead investors to take on excessive risk and so undermine longer-term financial stability."
Meeting participants agreed that some developments in financial markets, including the financing situation of the Puerto Rican government and events unfolding in emerging markets, needed to be carefully watched, according to the minutes.
Inflation was running below the FOMC's longer-run objective. "This was seen as posing possible risks to economic performance, but members anticipated that stable inflation expectations and strengthening economic activity would, over time, return inflation to the committee's 2% objective," the minutes said. "However, in light of their concerns about the persistence of low inflation, many members saw a need for the committee to monitor inflation developments carefully for evidence that inflation was moving back toward its longer-run objective."
The committee agreed to once again include in its statement that it would be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%. A few meeting participants suggested that "it might be appropriate to increase the federal funds rate relatively soon." But other participants "suggested that prescriptions from standard policy rules were not appropriate in current circumstances."
