Members of the Federal Open Market Committee agreed in April to consider “a range of options” for tightening the stance on monetary policy, according to minutes released Wednesday.
FOMC members meeting in Washington noted the Federal Reserve has never raised the federal funds rate “while holding a large balance sheet” due to bond-buying programs that began in 2009. “Participants generally agreed that starting to consider the options for normalization at this (April) meeting was prudent,” the minutes said, but they also agreed that no change in the target rate, which now stands at zero to 0.25%, or signals about when they might change the rate were warranted yet.
“They are going from a massive amount of liquidity injection to zero. That makes it a very different backdrop,” said Robert Tipp, managing director and chief investment strategist at Prudential Fixed Income, in an interview.
With “little change” in the economic outlook since their March meeting, members unanimously agreed to make further “measured” reduction of asset purchases, according to the minutes. Tapering began in January, dropping to $45 billion in purchases in May from $85 billion in monthly purchases throughout 2013.
“They're not going to want to see a tightening of financial conditions. They don't want to see a repeat of the second half of 2013,” Mr. Tipp said, noting that in some previous cycles of monetary policy tightening, interest rates rose and markets became unsettled. “It takes a psychological toll,” he said.