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Updated: Fed’s Asset Purchase Could End In October – FOMC Minutes

By Kitco News
Wednesday July 9, 2014 2:00 PM

Editor's Note: The article was updated to include more information from the minutes and comments from TD Securities.

(Kitco News) - Minutes of the Federal Open Market Committee's June meeting show that officials have decided to end their asset purchasing program in October if the economy continues to show economic growth.

“If the economy progresses about as the Committee expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting,” the minutes said.

However, the minutes also mentioned three times that the Federal Reserve’s quantitative easing program is not on a “preset course.”

The minutes showed that the committee remains optimistic that the U.S. economy will recover in the second half of the year, despite lowering its economic growth forecast at its June monetary policy meeting. According to projections released at the June meeting, committee members see 2014 growth between 2.1% to 2.3%, compared to their March forecast of 2.8% to 3.0%

“Members judged that the economy had sufficient underlying strength to support ongoing improvement in labor market conditions and a return of inflation toward the Committee's longer-run 2 percent objective,” the minutes said. “Most participants viewed the risks to the outlook for the economy, the labor market, and inflation as broadly balanced.”

Opinions on inflation were mixed, according to the minutes. Some committee members anticipate inflation expectations to remain stable; however other participants raised concerns that price pressures could pick up faster than expected as excess slack is removed from the economy.

Last month the labor department reported that the Consumer Price Index rose to 2.1% on an annualized seasonally unadjusted rate for May. Core CPI hit an annual unadjusted rate of 2.0% in May, the Fed’s long-term price target.

The minutes also showed that the increase in last month’s inflation is “consistent with the Committee's forecast of a gradual increase in inflation over the medium term.”

The committee members also had a range of views over the health of the labor market but appeared to be in general agreement that it continues to improve.

“Most participants projected the improvement in labor market conditions to continue, with the unemployment rate moving down gradually over the medium term,” the minutes said.

Eric Green, head of U.S. rates and economic research, said that the tone in the minutes demonstrates that the Fed is gaining more confidence in the current economic recovery. He also noted that the minutes show that the central bank is “eager” to get out of its quantitative easing program.

However, despite the rising optimism, he added that there is no indication that the central bank is ready to hike rates in the early part of 2015.

“There is no sign the Fed is eager to raise rates anytime soon and the balance to growth and inflation still look balanced,” he said. “They signal a good deal of comfort in managing policy with a high balance sheet and most view reinvestments as proceeding until or after the first rate hike. No appetite whatsoever to sell assets, but that appetite has been gone for some time.”

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By Neils Christensen of Kitco News; nchristensen@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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