Wednesday, May 21, 2014

FOMC Minutes Highlight Discussions Around Monetary Policy Normalization

The FOMC minutes from the April 29-30 meeting highlight the FOMC’s discussions around how to normalize monetary policy in the future and how to raise short term interest rates when the Committee decides to do so.

The minutes stated that, “Participants generally agreed that starting to consider the options for normalization at this meeting was prudent, as it would help the Committee to make decisions about approaches to policy normalization and to communicate its plans to the public well before the first steps in normalizing policy become appropriate.”

The committee noted the large size of the Federal Reserve’s balance sheet. Since the FOMC has never raised rates with such a large balance sheet, committee members generally favored the testing of different policy tools to use when they want to raise rates.

The improvement in weather caused a general increase in economic activity. However despite payroll improvements, “the unemployment rate held steady and was still elevated.” Moreover, “Consumer price inflation continued to run below the Committee's longer-run objective, but measures of longer-run inflation expectations remained stable.” The committee still feels it is abiding by its dual mandate to reduce unemployment and control inflation.

Read the FOMC minutes.

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