— We’ve heard a lot lately on the idea of an “open-ended” asset purchase program. Well, it seems the committee also discussed the possibility of a kind of open-ended language guidance. That’s in addition to discussing the idea of extending the date from late-2014 into 2015 or scrapping the guidance altogether and tying the start of eventual tightening to economic factors:
Participants discussed a number of policy tools that the Committee might employ if it decided to provide addi-tional monetary accommodation to support a stronger economic recovery in a context of price stability. One of the policy options discussed was an extension of the period over which the Committee expected to maintain its target range for the federal funds rate at 0 to ¼ percent. It was noted that such an extension might be particularly effective if done in conjunction with a statement indicating that a highly accommodative stance of monetary policy was likely to be maintained even as the recovery progressed. Given the uncertainty attending the economic outlook, a few participants questioned whether the conditionality of the forward guidance was sufficiently clear, and they suggested that the Committee should consider replacing the calendar date with guidance that was linked more directly to the economic factors that the Committee would consider in deciding to raise its target for the federal funds rate, or omit the forward guidance language entirely.
— There was also a discussion of the extent to which more asset purchases would disrupt the financial markets in Treasuries or agency MBS, with some on the FOMC citing a study by the Fed staff concluding that they wouldn’t:
In reviewing the costs that such a program might entail, some participants ex-pressed concerns about the effects of additional asset purchases on trading conditions in markets related to Treasury securities and agency MBS, but others agreed with the staff’s analysis showing substantial capacity for additional purchases without disrupting market functioning. Several worried that additional purchases might alter the process of normalizing the Federal Re-serve’s balance sheet when the time came to begin removing accommodation. A few participants were concerned that an extended period of accommodation or an additional large-scale asset purchase program could increase the risks to financial stability or lead to a rise in longer-term inflation expectations. Many participants indicated that any new purchase program should be sufficiently flexible to allow adjustments, as needed, in response to economic developments or to changes in the Committee’s assessment of the efficacy and costs of the program.
— They talked about possibly lowering interest on reserves, though it continues to seem unlikely anytime soon:
Some participants commented on other possible tools for adding policy accommodation, including a reduc-tion in the interest rate paid on required and excess reserve balances. While a couple of participants fa-vored such a reduction, several others raised concerns about possible adverse effects on money markets. It was noted that the ECB’s recent cut in its deposit rate to zero provided an opportunity to learn more about the possible consequences for market functioning of such a move.
— And they gave a apparently cursory nod in the direction of the UK’s funding for lending program:
In light of the Bank of England’s Fund-ing for Lending Scheme, a couple of participants expressed interest in exploring possible programs aimed at encouraging bank lending to households and firms, although the importance of institutional differences between the two countries was noted.
— Time to start guessing the meaning of “substantial and sustainable”:
Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.
— As to future updates to the Fed’s communications policy, something that Robin explained after the last minutes, the committee agreed to conduct another experimental exercise on the possibility of changing to an FOMC consensus forecast:
Consensus Forecast ExperimentIn light of the discussion at the previous FOMC meet-ing, the subcommittee on communications developed an initial experimental exercise intended to shed light on the feasibility and desirability of constructing an FOMC consensus forecast. At this meeting, partici-pants discussed various aspects of the exercise, such as the possible monetary policy assumptions on which to condition an FOMC consensus forecast, the measure-ment of the degree of uncertainty surrounding each of the projected variables in the forecast, and the potential for communications benefits. In conclusion, partici-pants generally expressed support for a second exercise to be undertaken in conjunction with the September FOMC meeting.
Click through to read them in full, and as usual we’ll be updating this post periodically with highlights as we find them: