Final Exit

Participants of the June 17-18 Federal Open Market Committee meeting saw the economy rebounding from a weak first quarter, largely blamed on bad weather.

"If the economy progresses about as the Committee expects... this final reduction would occur following the October meeting," the minutes said.

Though the Fed previously has indicated it would end asset purchases by year-end, this was the first time an explicit month has been named. Most Fed-watchers had expected the buying to end in October.

The FOMC has been tapering the quantitative easing (QE) program in incremental steps of $10 billion this year, bringing monthly bond purchases down from $85 billion in December to $35 billion in June.

After $10 billion cuts expected from each of its July and September meetings, the policy makers agreed a final $15 billion reduction could be decided in October.

Three rounds of QE, the Fed's exceptional stimulus aimed at holding down longer-term interest rates, has swollen the Fed's balance sheet to $4.3 trillion.

The FOMC expects it would not begin raising its near-zero benchmark interest rate for "a considerable time" after the asset purchase program ends, the minutes said, "especially if projected inflation continued to run below the Committee's 2 percent longer-run goal."

Though asset purchases end, the Fed still will continue to reinvest the funds from the bonds it holds. "Many" participants agreed that ending reinvestments at or after the time of raising rates would be best, with "most" of them preferring to end them "after liftoff."

The minutes reaffirmed the Fed's expectations that a rate hike would not come before mid-2015. The federal funds rate has been at a record low range of zero to 0.25 percent since late 2008.

"The FOMC minutes once again included some discussion about details of eventual tightening, but they also made clear that such tightening is not imminent -- the discussion is just part of long-term planning," said Jim O'Sullivan, chief US economist at High Frequency Economics. "Overall, no major surprises."

Policymakers at the meeting weighed evidence that inflation had moved up recently from low levels earlier in the year toward the central bank's 2.0 percent target.

The Fed's preferred inflation measure, the personal consumption expenditures price index, has climbed for three straight months, hitting a 1.8 percent gain in May from a year ago.

Some officials were worried that inflation was heating up, while others expressed concern about the persistence of below-trend inflation in the economy, still struggling to recover five years after the end of the Great Recession.

- Market rally concerns -

Policy makers also appeared concerned about the strong run-up in the stock markets, the minutes showed, with a discussion on "whether some recent trends in financial markets might suggest that investors were not appropriately taking account of risks in their investment decisions."

Citing that reason, they agreed that the Fed should emphasize in its communications that its policy decisions depend on the evolution of the economic outlook.

Fed Chair Janet Yellen, in a speech a week ago, said she saw "pockets" of increased risk taking across the financial system, but emphasized that regulatory action was the better approach, rather than the "very blunt tool" of monetary policy.

The potential impact of developments abroad on US monetary policy were also discussed.

A couple of officials noted moves toward more accommodative policies by the European Central Bank and the Bank of Japan had boosted the economic growth outlook for those areas, potentially helping US inflation return to the Fed target.

"Several others, however, remained concerned that persistent low inflation in Europe and Japan could eventually erode inflation expectations more broadly," the minutes said.

"And a couple of participants expressed uncertainty about the outlook for economic growth in Japan and China."

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