Dec. Fed Minutes: Majority Of Fed Participants Doubt Efficacy of Its Quantitative Easing Program


Minutes from the Federal Reserve’s December 17-18th meeting revealed that the majority of Fed participants believe that the potency of the central bank’s $ 85 billion quantitative easing program is growing weaker as the economy strengthens and the labor market improves.

Last month the Federal Reserve announced a reduction in its monthly purchases of long term securities to $75 billion from $85 billion that begins in January 2014.

The majority of Fed committee participants view the Fed’s $85 billion quantitative easing program as losing steam and packing a weaker punch to drive long-term interest rates lower at a time when the economy is picking up steam.

“A majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continue, although some noted the difficulty inherent in making such an assessment” the Fed minutes revealed.

The majority of Fed members are expecting the Fed to continue slowing the pace of their securities in 2014 and winding down the controversial program in the second half of 2014 as economic growth is expected to accelerate in 2014 and the unemployment rate lower below the current level of 7 percent.

“Most participants viewed their economic projections as broadly consistent with a slowing in the pace of the Committee’s purchases of longer-term securities in early 2014 and the completion of the program in the second half of the year” Fed minutes revealed.

The Fed will slow its purchases of securities through its quantitative easing program provided that the economy is capable of sustaining the Fed’s projection of economic growth in 2014, the unemployment rate continues to decline, and inflation moves up from the 1 percent level closer to to the Fed’s 2 percent target.

Better Employment Data

Fed participants based their decision to slow their pace of  security purchases on improving employment data at the end of 2013 which saw an expansion of monthly gains in payroll employment of more than 200,000 in October and November.

“Total nonfarm payroll employment rose in October and November at a faster monthly pace than in the previous two quarters. The unemployment rate declined, on net, from 7.2 percent in September to 7.0 percent in November” Fed minutes showed.

Based on a longer-term continuum, the U.S. labor market is showing a positive trend of improvement as highlighted in the Fed’s data.

“The most recent data showed that increases in nonfarm payroll employment had averaged around 190,000 per month for the past 15 months, and the unemployment rate had fallen more quickly over that period than most participants had expected” Fed minutes revealed.

However, the Fed acknowledged that the rise in long-term interest rates since the spring of 2013 is somewhat slowing the housing market rebound.

“The pace of activity in the housing sector appeared to continue to slow somewhat, likely reflecting the higher level of mortgage rates since the spring” Fed minutes showed.


Fed participants expressed concerns that inflation remains below its 2 percent objective and could present some risks to the economy. But Fed participants are expecting a moderate pace of inflation in the first half of 2014 with higher levels coming in late 2014.

“The staff continued to forecast that inflation would be modest, on net, through early next year but higher than its low level in the first half of this year. The staff’s projection for inflation over the medium term was essentially unchanged” Fed minutes revealed.

Maintaining Short-Term Interest Rates

The Fed has communicated that short-term interest rates would not be raised until “well past” the time that the unemployment rate fell below 6.5 percent which was an earlier threshold or benchmark for raising rates.

-John Schweitzer

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