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Minutes: Fed began weighing options for rate rise

Published on NewsOK Modified: May 21, 2014 at 4:35 pm •  Published: May 21, 2014
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WASHINGTON (AP) — The Federal Reserve has begun to discuss the tools it could use to finally pull back the extraordinary stimulus it's provided the U.S. economy since 2008. But Fed officials plan further discussions and have set no timetable for any increase in interest rates.

Minutes of the Fed's April 29-30 meeting released Wednesday show that officials discussed how to unwind the support they've given the economy once they decide to begin raising the Fed's key short-term rate. That rate has remained at a record low near zero since December 2008.

The minutes stressed that the discussion should not be viewed as a signal that an increase in short-term rates is imminent. Because the economy is still recovering, most analysts don't think the Fed will start boosting rates before the second half of 2015.

Economists said there was little new information in the minutes, which were released as usual three weeks after the most recent Fed meeting.

"Nothing in the minutes challenges our view that bond buying will end this year but that interest-rate hikes will wait until late 2015," said Paul Edelstein, director of financial economics at HIS Global Insight.

The Fed is moving into uncharted territory. Never before has it considered raising rates with its investment holdings of Treasury bonds and mortgage-backed securities at such high levels.

The Fed has conducted three rounds of bond purchases in the past five years, driving its balance sheet above $4 trillion, to try to keep long-term rates low to boost the economy. In December, it began scaling back its purchases. But officials have said that even when they stop buying bonds late this year, they don't plan to start selling their holdings.

The Fed's discussion of its exit strategy involves how it will manage its investment holdings during a period when it will be starting to raise short-term rates.

The Fed published an exit strategy in 2011. But officials have said that plan needs to be updated to take account of changing economic circumstances and the fact that the bond holdings have grown so much. They're now four times their size before the financial crisis hit with force in the fall of 2008.

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