A number of Federal Reserve officials said the central bank may need to expand its monthly purchases of bonds next year after the expiration of Operation Twist, according to minutes of their last meeting.
“A number of participants indicated that additional asset purchases would likely be appropriate next year after the conclusion of the maturity-extension program,” according to the record of the Federal Open Market Committee’s Oct. 23-24 gathering released today in Washington.
Under Operation Twist, scheduled to end in December, the Fed is swapping short-term Treasuries on its balance sheet for longer-term debt. The Fed in addition is buying $40 billion a month in mortgage-backed securities in a third round of so- called quantitative easing aimed at fueling economic growth and reducing unemployment.
The minutes also show a detailed discussion about whether the central bank should link its policy of holding the main interest rate at zero to numerical measurements of unemployment and inflation, an approach that participants “generally favored” over the current approach of specifying a calendar date through which rates will remain low.
Fed Vice Chairman Janet Yellen and three other officials at the central bank have publicly endorsed the strategy. The central bank pledged in September to hold the benchmark interest rate at a record low at least through mid-2015. Tying policy instead to an economic threshold would provide more clarity on the outlook for monetary policy, Yellen said yesterday.
Policy makers had differing views on “whether quantitative or qualitative thresholds would be most effective” with “many” favoring the former approach and “a number” preferring a qualitative approach.
The idea for quantitative targets first came from Chicago Fed President Charles Evans, who has suggested holding rates near zero until unemployment reached 7 percent so long as inflation did not breach 3 percent.
In addition to disagreeing on how to specify their thresholds, the committee said it “would need to resolve a number of practical issues before deciding whether to adopt quantitative thresholds to communicate its thinking about the timing of the initial increase in the federal funds rate,” according to the minutes.
The Standard & Poor’s 500 Index extended declines after release of the minutes, falling 0.7 percent to 1,365.02 as of 2:14 p.m. in New York. The yield on the benchmark 10-year Treasury was little changed at 1.59 percent.