WASHINGTON (7/10/14)--If the U.S. economy sticks to its current pace of growth, the Federal Reserve will retire its asset-purchase program completely in October, according to the minutes from the Federal Open Market Committee's (FOMC) June meeting.
The bond-buying program, named quantitative easing, has been a critical tool employed by the monetary-policymaking body for the last few years that has injected much-needed cash into the economy.
But as the labor market and manufacturing have steadily improved, among other positive markers, the Fed feels it can soon shelve the stimulus tactic.
"While the current asset purchase program is not on a preset course, participants generally agreed that if the economy evolved as they anticipated, the program would likely be completed later this year," the minutes said.
With the plan to end quantitative easing all but set, the committee must now decide when to begin raising short-term interest rates that also have kept lending conditions light in recent years.
Most analysts, including the Credit Union National Association's interim Chief Economist Mike Schenk, believe the Fed won't begin hiking interest rates until early- to mid-2015.
As far as an exit strategy in terms of unloading its massive balance sheet as a result of the bond-buying program, the committee has many options, but the group has yet to reach a consensus on any of them.
"The overnight reserve-repurchase agreements, the term deposit facility, and interest on excess reserves have all been discussed as tools the Fed could use to tighten policy while holding a large balance sheet," Moody's analyst Ryan Sweet wrote (Economy.com July 9). "Policymakers may wait until they have a consensus on the entire plan rather than roll out a work in progress."