The Federal Reserve intends to end its bond-buying program in October provided the economy continues to grow, according to an account published Wednesday of the central bank’s most recent policymaking meeting.
The minutes of the June meeting reflected the confidence of Fed officials that the economy had rebounded from a rough winter and their expectation that growth would continue over the next few years. But it also reflected the growing consensus that damage from the recession would continue to limit the pace of growth.
The Fed plans to add $35 billion to its holdings of Treasury and mortgage-backed securities in July, $25 billion in August and September, and a final $15 billion in October, according to the account. The Fed had previously left unclear whether it might extend the purchases by adding $5 billion in November and December.
The minutes said that ending the purchases in October rather than December was not intended to signal any change in the timing of the next step in the Fed’s retreat – the first increase in its benchmark interest rate since December 2008. Investors generally expect the Fed to start raising interest rates next summer.
“Most participants viewed this as a technical issue with no substantive macroeconomic consequences and no consequences for the eventual decision about the timing of the first increase in the federal funds rate,” the minutes said.
Even after the Fed ends the expansion of the portfolio, it plans to maintain the size of its holdings by reinvesting payments of principal. Those purchases, primarily of mortgage bonds, have totaled about $16 billion a month so far this year.
The minutes said that most Fed officials favored maintaining this reinvestment policy until after the Fed had started to raise interest rates, to focus public attention on what officials regarded as the most important lever of monetary policy.