Federal Reserve officials raised the possibility that they might begin removing aggressive stimulus sooner than anticipated, as they neared agreement on an exit strategy, according to minutes of their July meeting.
“Many participants noted that if convergence toward the committee's objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated,” said the minutes, which were released Wednesday.
Fed Chairwoman Janet Yellen has committed monetary policy to stronger labor markets, which she measures with an array of indicators, so long as inflation remains in check. The minutes said “many participants” still see “a larger gap between current labor market conditions and those consistent with their assessments of normal levels of labor utilization.”
In their post-meeting statement last month, Fed officials downplayed recent declines in the unemployment rate, highlighting “significant underutilization of labor resources.”
Still, the minutes showed policymakers anticipating further labor market strength.
“Many members noted, however, that the characterization of labor market underutilization might have to change before long, particularly if progress in the labor market continued to be faster than anticipated,” the minutes said.
Fed officials, discussing their strategy for eventual “normalization” of policy, expressed a desire to keep the federal funds rate as the key policy rate, targeting a range of 25 basis points “at the time of liftoff and for some time thereafter,” according to the minutes.
There was no discussion of the timing of a rate increase in the minutes. Fed officials have forecast that it would occur some time next year. The central bank has kept its benchmark rate near zero since December 2008.
The Federal Open Market Committee in July continued cutting the monthly pace of asset purchases, reducing it by $10 billion for a sixth straight meeting, to $25 billion. Bond buying has boosted the central bank's balance sheet to a record $4.43 trillion.