Fed Sets October End Date For Monthly Asset Purchases
Washington (July 9) Buried on the tenth page of minutes chronicling the Federal Open Market Committee latest meeting was a small bit of news Fed watchers had long been waiting for. The Federal Reserve will end its monthly asset purchased program in October, ten months after it began the tapering process.
After the requisite warning that “the current asset purchase program is not on a preset course,” the account revealed that the committee agreed “it would be appropriate to complete asset purchases with a $15 billion reduction in the pace of purchases in order to avoid having the small, remaining level of purchases receive undue focus among investors. If the economy progresses about as the Committee expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting.”
With the economy slowly improving there has been little doubt among Fed watchers that quantitative easing would come to an end around the close of 2014. It had not been clear, however, whether the final cut would be $15 million or $5 million and whether is would follow the October meeting or December meeting.
Each month of 2013 the Fed purchased $85 billion worth of bonds as part of its effort to simulate an American economy that was proving slow to recover from the 2008 recession. In December, after months of speculation, the FOMC cut monthly asset purchases to $75 billion noting that the economy was moderately expanding. The committee pledged to keep a close watch on economic data but implied — barring significant changes to its outlook — investors should expect the same small measured cuts at subsequent meetings. At each meeting since — January, March, April and June – the FOMC cut $10 billion — $5 billion each from mortgage and treasury purchases.
The June cut — chronicled in the minutes out Wednesday — brought the Fed’s monthly bond purchases to $35 billion with $15 billion going toward mortgage bonds and $20 billion toward treasuries. The FOMC will hold its next meeting on July 29 and 30.