While the Federal Open Market Committee concluded the more than two-year-old asset purchase program at the end of October, the anticipated path of the federal funds rate is still up for debate, the minutes from the committee's October meetings show.
At the time of the announcement, the FOMC used the language, “Based on [the FOMC’s] current assessment, it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee's 2% longer-run goal, and provided that longer-term inflation expectations remain well anchored.”
“However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated,” the minutes continued.
The committee was cautious about its choice to use the phrasing “considerable time,” breaking it up into four main arguments:
- Some participants preferred to eliminate language in the statement indicating that the current target range for the federal funds rate would likely be maintained for a “considerable time” after the end of the asset purchase program. These participants were concerned that such a characterization could be misinterpreted as suggesting that the committee’s decisions would not depend on the incoming data.
- Other participants thought that the “considerable time” phrase was useful in communicating the committee’s policy intentions or that additional wording could be used to emphasize the data-dependence of the committee’s decision process.
- Others noted that the removal of the “considerable time” phrase might be seen as signaling a significant shift in the stance of policy, potentially resulting in an unintended tightening of financial conditions.
- Others thought that the current forward guidance might be read as suggesting an earlier date of liftoff than was likely to prove appropriate, given the outlook for inflation and the downside risks to the economy associated with the effective lower bound on interest rates.
Overall, meeting participants agreed that the timing of the first increase in the federal funds rate and the appropriate path of the policy rate thereafter would depend on incoming economic data and their implications for the outlook.
For tapering, all members but one supported concluding the committee’s asset purchase program at the end of October.
Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, was the only dissenting vote.