1 minutes, 555 words, and Fed-whisperer Jon Hilsenrath declares that based on the FOMC minutes, QE is dead and now the uncertainty is all about rate-hike timing. Crucially, given the Fed's concerns over complacency, Hilsenrath explains, "while they don't expect rates to get very high because of lingering headwinds to the economy, they also don't want to give the public too much comfort that they'll remain near historically low levels far into the future."
Federal Reserve officials agreed at their June policy meeting to end the central bank's bond-buying program by October, closing a chapter on a controversial experiment in central-banking annals with results still the subject of immense debate.
Officials have been winding down their purchases of Treasury bonds and mortgage-backed securities in incremental steps since January and have said they expect to end the program later this year, but until now haven't been explicit about the end date.
"If the economy progresses about as the [Fed] expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting," the Fed said in minutes released Wednesday from its June policy meeting.
The bond program aims to hold down long-term interest rates and drive investors into riskier holdings like stocks or corporate debt. That in turn is meant to stimulate borrowing, lending, spending, investing and hiring.
Critics have long argued the program risks causing another financial bubble or excessive inflation, without giving an obvious boost to hiring. Fed officials and other supporters of the program argue it has helped the economy grow faster than it would otherwise grow, with limited risk.
The Fed first started bond buying during the heat of the financial crisis in early 2009. It expanded its efforts in September 2012. Since the last expansion, its total holdings of bonds, loans and other assets have grown from $2.8 trillion to $4.4 trillion.
The Fed has already reduced its purchases in $10 billion increments to $35 billion per month from a peak of $85 billion. Its stated plan is to reduce it in increments at its next three policy meetings, ending it in October with a $15 billion reduction.
Behind the Fed's decision to wind down the program is a view that the economy is gradually strengthening, despite a first-quarter stumble in growth. However, in almost every area they discussed, officials appeared to strain to come to a common view about how the economy is evolving.
On the central issue of the job market, for example, they expressed a wide range of views. "Many judged that slack remained elevated," the minutes said, but "several participants pointed out that both long- and short-term unemployment and measures that include marginally attached workers had declined."
"Most participants projected the improvement in labor market conditions to continue, with the unemployment rate moving down gradually over the medium term," the minutes concluded.
They went in different directions on financial conditions, as well. "Favorable financial conditions appeared be supporting economic activity," the minutes said. "However, participants also discussed whether some recent trends in financial markets might suggest that investors were not appropriately taking account of risks in their investment decisions."
The Fed faces tough choices about the timing and pace of interest-rate increases in the months ahead. As this debate intensifies, officials have been moving away from giving the public firm guidance about interest rates and trying to stress the uncertainty about the path ahead. While they don't expect rates to get very high because of lingering headwinds to the economy, they also don't want to give the public too much comfort that they'll remain near historically low levels far into the future.
The Fed agreed "to emphasize in its communications the dependence of its policy decisions on the evolution of the economic outlook."