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Fed Discusses Rate-Hike Procedures at April Meetings, Minutes Reveal

H.S. Borji
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Fed Discusses Rate-Hike Procedures at April Meetings, Minutes Reveal

Federal Reserve officials discussed the appropriate mix of policy tools and control rates needed to normalize monetary policy, but said “normalization would not necessarily begin any time soon,” the minutes of the April 29-30 Federal Open Market Committee policy meetings revealed.

The minutes disclosed policymakers had tentatively discussed rate-hike procedures, a sign the central bank was prepared to shift monetary policy once the economy improved further.

“Participants generally agreed that starting to consider the options for normalization at this meeting was prudent, as it would help the Committee to make decisions about approaches to policy normalization and to communicate its plans to the public well before the first steps in normalizing policy become appropriate,” the minutes read.

The Fed unanimously agreed at the April meetings to taper bond purchasing by another $10 billion and keep the benchmark interest rate at 0.25 percent. A month earlier the nine-member FOMC discarded their forward guidance tying interest rates to unemployment in response to the latter approaching its threshold of 6.5 percent at a time when the Fed was still not prepared to raise rates.

Fed Chair Janet Yellen testified to the Joint Economic Committee May 7 that the central bank would likely end its record stimulus program in the fall as the labour market continues to improve. She stopped short of suggesting a timetable for when the Fed could raise interest rates. Following the March rate decision Yellen told the public the central bank could begin raising interest rates six months after quantitative easing was phased out.

Fed officials said real GDP growth in the first half of the year were slower than in the forecast for the March meeting, as exports and residential investment pointed to less spending growth than previously expected. However, officials acknowledged that the unexpected weakness in the first quarter, largely the result of severe weather, would be mostly transitory, and would not impact second quarter growth to any significant degree.

Early estimates of second quarter growth suggest the US economy may expand 3.5 percent between April and June, according to a recent Bloomberg survey.

Most officials took note of the slowdown in the housing sector and said softness in this area of the economy could lead to downside risk. Officials cited a range of factors impacting the housing recovery, including rising house prices, input cost pressures and construction bottlenecks.

The Commerce Department reported earlier this week the housing sector rebounded in April, as groundbreaking and building permits rose faster than forecast.

The National Association of Realtors will report on previously-owned home sales Thursday. and the Commerce Department will release data on new home sales Friday.

The US dollar index, a weighted average of the greenback versus six of its major trade peers, fell from an intraday high of 80.30 following the release The index landed at 80.08, advancing 0.05 percent.

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