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Why the Fed announced the end of bond purchases in the minutes
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Why the Fed announced the end of bond purchases in the minutes

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Why the Fed announced the end of bond purchases in the minutes

Having roiled financial markets in March for suggesting the first interest-rate hike could come “six months” after the end of the bond-buying program, Fed Chairwoman Janet Yellen appeared in no mood to test her luck again, analysts said.

As a result, the Fed didn’t disclose the planned timetable for wrapping up its bond-buying program until the release of the minutes of the policy meeting, three weeks after Yellen’s press conference.

“Just my guess, but it seems like Yellen [was] being extra careful after the ‘six months’ fiasco a few months back,” said Kim Fraser Chase, senior economist at BBVA Compass.

The Fed announced in the minutes released Wednesday that it generally agreed to end the bond-buying program, also known as QE3, with a final $15 billion taper in October, rather than extending it until its December meeting. The Fed has been trimming the program by $10 billion at each meeting this year and this would have left a $5 billion rump of Treasury purchases without the larger taper.

Chris Low, chief economist at FTN Financial, said putting the taper decision in the minutes shows that communication in the Yellen Fed is still a process of trial and error.

“Yellen is still feeling this out,” Low said. After the six-month comment, the Fed seemed to think that it was best to announce the plan to end asset purchases in writing, he said.

Robert Brusca, chief economist at FAO Economics, said the Fed probably thought the minutes were a good choice to announce the taper ending because they could explain “what it means and what it doesn’t mean.” And that is what they tried to do. According to the Fed summary:

“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 – a decision that will depend on the Committee’s evolving assessments of actual and expected progress toward the objectives.”

Why the Fed announced the end of bond purchases in the minutes - Capitol Report - MarketWatch

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