The big takeaway from the minutes of the Federal Open Markets Committee January meeting for the housing industry is that tapering is likely to continue apace, and that the Federal Reserve is throwing out its previous goal post of 6.5% unemployment in favor of an ill-defined mandate for continued quantitative guidance.
Although the employment situation is dire, given record numbers of people dropping out of the workforce, the official unemployment rate breeched 6.6% in January. (Read story on the real unemployment rate here.)
Members of the FOMC said it would soon be appropriate for the committee to change its forward guidance in order to provide information about its decisions regarding the federal funds rate after that threshold was crossed.
A range of views was expressed – some participants favored quantitative guidance along the lines of the existing thresholds, while others preferred a qualitative approach that would provide additional information regarding the factors that would guide the committee’s policy decisions.
Several participants argued that, in the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor of continuing to reduce the pace of purchases by a total of $10 billion at each FOMC meeting.
That said, a number of participants noted that if the economy deviated substantially from its expected path, the Committee should be prepared to respond with an appropriate adjustment to the trajectory of its purchases.
Several members favored continuing a scheduled tapering of $10 billion per FOMC meeting. In contrast, two participants favored a pause in tapering due to slack in the economy and low inflation.
A number of participants noted that recent economic news had reinforced their confidence in their projection of moderate economic growth over the medium run.
Click here to read the full minutes.