Tags: federal reserve | exit strategy | policy | economy

Federal Reserve Board Met in Sign Exit Strategy Under Discussion

Thursday, 01 May 2014 07:59 AM

Federal Reserve Board members convened Wednesday amid indications they may be re-starting discussions on an exit strategy from record monetary stimulus.

The Fed Board of Governors filed a public meeting notice yesterday to discuss “medium-term policy issues” with the Federal Open Market Committee, the policy-making body that includes regional Fed bank presidents as well as governors.

The announcement is significant because government sunshine laws require such notices when a board is prepared to vote or discuss something directly related to their policy authority.

One item under the board’s sole authority is the payment of interest on excess bank reserves, and a joint meeting with the FOMC is a sign that officials may be pondering how to use that tool as they prepare to raise interest rates sometime in 2015, said Lou Crandall, chief economist at Wrightson ICAP LLC.

One possible reason for the public notice was “they wanted to discuss the board’s view on the excess reserve rate,” said Crandall. “All the regional bank presidents have been discussing this stuff for weeks.”

Fed spokeswoman Michelle Smith declined to comment. Whatever FOMC members discussed will be in the minutes published three weeks from now.

With a possible rise in the Fed’s benchmark interest rate a little more than a year away, according to rates on federal funds futures contracts, the Fed hasn’t said how its policy tools will work in concert to manage short-term interest rates. The benchmark rate has been close to zero for more than five years.

In addition to the interest rate on excess reserves, the tools also include the reverse repo facility, which drains excess cash out of the financial system. The reverse repo rate is under the authority of the FOMC, while the IOER rate is set by the Board of Governors.

Wednesday’s discussions aren’t a sign that the FOMC is preparing to raise interest rates any time soon. Still, it isn’t too early to have such talks, given that the Fed’s exit strategy will be complex with the Fed’s balance sheet at $4.3 trillion.


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Federal Reserve Board members convened Wednesday amid indications they may be re-starting discussions on an exit strategy from record monetary stimulus.The Fed Board of Governors filed a public meeting notice yesterday to discuss "medium-term policy issues" with the Federal...
federal reserve, exit strategy, policy, economy
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2014-59-01
Thursday, 01 May 2014 07:59 AM
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