Some Federal Reserve policy makers were concerned investors may be growing too complacent about the economic outlook and the central bank should be on the lookout for excessive risk-taking, according to minutes of their June meeting.
“Signs of increased risk-taking were viewed by some participants as an indication that market participants were not factoring in sufficient uncertainty about the path of the economy and monetary policy,” the minutes showed.
Fed officials expressed concern about low volatility in equity, currency and fixed-income markets. At the same time, “it was noted that monetary policy needed to continue to promote the favorable financial conditions required to support the economic expansion,” according to the minutes of the June 17-18 Federal Open Market Committee meeting released today in Washington.
Officials also agreed that their bond-purchase program would end with a final reduction of $15 billion in buying at their October meeting if the economy progresses as they expect.
At its June meeting, the FOMC continued cutting the monthly pace of asset purchases, reducing it by $10 billion for a fifth straight meeting, to $35 billion.
Central bankers also continued discussions of a strategy for the eventual exit from unprecedented monetary easing. “It was observed that it would be useful for the committee to develop and communicate its plans to the public later this year, well before the first steps in normalizing policy become appropriate.”
Ending Reinvestment
Many participants agreed that it “would be best” for the Fed to end reinvestment of maturing securities only when it raises rates for the first time since 2006, or even afterward. Most preferred to end after.
Fed officials are closing in on their goal of full employment faster than they had forecast, forcing them to consider accelerating their first increase in the main interest rate in eight years. The Fed has said rates are likely to remain low for a “considerable time” after it ends large scale asset purchases that are set to wind down by year end.