(Bloomberg News) Federal Reserve policy makers neared agreement on the sequence of tools they will use to withdraw record monetary stimulus, with little accord on when to start.
The central bank should first end its policy of reinvesting proceeds from maturing securities and later raise interest rates and sell assets, majorities of policy makers said at their April 26-27 meeting, according to minutes released yesterday. The caveat: Talks about the exit strategy don't mean that tightening "would necessarily begin soon," the report said.
"It's almost like planning for retirement but not knowing when you're going to retire," said Keith Hembre, a former Fed researcher who's now chief economist and investment strategist in Minneapolis at Nuveen Asset Management, which oversees about $205 billion.
The discussion shows how Fed Chairman Ben S. Bernanke and his colleagues are trying to reassure investors that they can manage an unprecedented effort to unwind a $2.6 trillion securities portfolio and raise a near-zero benchmark interest rate. Getting the timing right may determine whether the Fed can contain inflation without unnecessarily harming economic growth and employment.
"There's a fairly stark division" among Fed officials about when to exit, Hembre said. Still, he said there's no hurry among the Fed's top three officials -- Bernanke, Vice Chairman Janet Yellen and William C. Dudley, president of the Federal Reserve Bank of New York. Those three are "driving the boat here."
Dollar, Stocks
The dollar pared losses against the euro, while U.S. stocks and 10-year Treasury yields extended gains after the release of the minutes. The Standard & Poor's 500 Index climbed 0.9 percent to 1,340.68 at 4 p.m. in New York, and the 10-year yield rose to 3.18 percent from 3.12 percent.
The minutes reflected the first detailed discussion of the Fed's exit strategy since the central bank started to buy $600 billion of Treasury securities in November. The purchases are the second round of so-called quantitative easing, following a $1.7 trillion program that ended in March 2010.
The timing of an exit got less discussion in April than in the March 15 meeting, when policy makers differed over whether to begin withdrawal this year. A "few" took the position on each side, minutes of that meeting said.
Last month, a "few" members saw the "increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant the Committee taking steps toward less-accommodative policy sooner than currently anticipated," the report said.