8 Fed Exit Revelations From Its April Meeting Minutes


The Federal Open Market Committee Meeting in April was completely overshadowed by the first post-meeting presser by Fed Chair Ben Bernanke. Of course, it didn't help that the meeting statement revealed absolutely nothing new. But today, the FOMC released its meeting minutes. They show some pretty interesting discussion surrounding the Fed's exit strategy.

Much of the first section of the minutes focused on how to "normalize" monetary policy. It explained what the governors are thinking in terms of exit execution, though it provided little insight on the timing. In fact, it explicitly said:

Participants noted that the Committee's decision to discuss the appropriate strategy for normalizing the stance of policy at the current meeting did not mean that the move toward such normalization would necessarily begin soon.

So this is just planning for a future date, not tomorrow. Though, it does presumably indicate that exit is on the Fed's mind. That might be in large part to assure the market that it shouldn't worry about inflation, because the Fed really does have a plan to avoid it. There are a few interesting statements made in the minutes about how the Fed will proceed once exit begins:

  1. The Fed will reduce its asset holdings over the intermediate term to something more in line with normal activity, so that the federal funds rate can again become its chief monetary policy tool.
  2. The Fed intends to get rid of all of the securities on its balance sheet that aren't Treasuries to move it back to historical norms, again in the intermediate term.
  3. In order to restore the Fed's balance sheet assets to consist of Treasuries, agency (mortgage) securities will eventually have to be sold. That is to say that relying on the assets' maturity alone won't be adequate -- it won't come fast enough.
  4. A clear public communication framework must be put in place to conduct these asset sales, but probably one which would also provide the Fed some flexibility.
  5. The first step in its exit strategy would be to stop reinvesting maturing assets and just allowing them to runoff naturally.
  6. The second (or a concurrent) step would be to change the language in forward policy guidance, which presumably means to stop saying that rates will be exceptionally low "for an extended period."
  7. We'll probably see interest rates move before asset sales begin, however, as a majority of FOMC participants favor that approach. This implies that asset sales are likely quite a ways off. (sometime beyond "an extended period")
  8. It may take at least five years, once sales begin, to restore the Fed's balance sheet to a size nearer to historical norms. So these sales will be very gradual once started.

Usually the minutes provide some excitement once per quarter when new economic projections are released. In April, however, they were released with the meeting statement, since Bernanke's presser was meant to discuss them.

As stated at that time, the Fed governors and presidents were a little more pessimistic about GDP growth in the shorter-term than they were in January. The range of growth rate projections for 2011 and 2012 ticked down by between 0.1% and 0.5%, depending on which committee member you ask. Meanwhile, unemployment expectations generally improved a bit. Finally higher inflation expectations were reported. See below for charts that document these changes.

FOMC 2011-04 GDP.png

FOMC 2011-04 Unemployment.png

FOMC 2011-04 Inflation.png
Jump to comments
Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
Get Today's Top Stories in Your Inbox (preview)

The Time JFK Called the Air Force to Complain About a 'Silly Bastard'

51 years ago, President John F. Kennedy made a very angry phone call.

Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus


Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.


What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.


Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.


Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.


Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.


The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air



More in Business

Just In