FOMC minutes: Market participants increasingly focused on how asset purchases might evolve

Minutes of the November 5 FOMC

  • Some market participants expected the Committee to eventually lengthen the weighted average maturity of the Federal Reserve’s purchases of Treasury securities.
  • Meeting participants generally saw the current QE pace and composition as effective
  • While participants judged that immediate adjustments to the pace and composition of asset purchases were not necessary, they recognized that circumstances could shift to warrant such adjustments. Accordingly, participants saw the ongoing careful consideration of potential next steps for enhancing the Committee’s guidance for its asset purchases as appropriate.
  • Staff noted that financial market participants generally expected the Committee to continue its net asset purchases at the current pace through next year and at a reduced pace in subsequent years
  • The September FOMC statement indicated that asset purchases will continue “over coming months,” and participants viewed this guidance for asset purchases as having served the Committee well so far. Most participants judged that the Committee should update this guidance at some point and implement qualitative outcome-based guidance that links the horizon over which the Committee anticipates it would be conducting asset purchases to economic conditions.
  • Most participants judged that the guidance for asset purchases should imply that increases in the Committee’s securities holdings would taper and cease sometime before the Committee would begin to raise the target range for the federal funds rate.
  • Most policymakers thought Fed should implement outcome-based guidance for QE because of uncertainty over economic outlook
  • Full text
There is so much talk about tweaking QE in the minutes. The volume of the talk alone starts to sound like a signal. My quick read is that a change in guidance is likely coming in December and that will set up more action at a future meeting.
Here is some of the talk on changing QE:
Participants commented on considerations related to the appropriate pace and composition of asset purchases. Participants generally saw the current pace and composition as effective in fostering accommodative financial conditions. Participants noted that the Committee could provide more accommodation, if appropriate, by increasing the pace of purchases or by shifting its Treasury purchases to those with a longer maturity without increasing the size of its purchases. Alternatively, the Committee could provide more accommodation, if appropriate, by conducting purchases of the same pace and composition over a longer horizon. Pointing to the recently announced change in the Bank of Canada’s asset purchase program, several participants judged that the Committee could maintain its current degree of accommodation by lengthening the maturity of the Committee’s Treasury purchases while reducing the pace of purchases somewhat. In their view, such a change in the Committee’s purchase structure would have to be carefully communicated to the public to avoid the misperception that the reduced pace of purchases represented a decline in the degree of accommodation. A few participants expressed concern that maintaining the current pace of agency MBS purchases could contribute to potential valuation pressures in housing markets.