Federal Reserve policymakers said U.S. monetary policy will likely return to normal as early as 2018, according to minutes of their meeting released Wednesday.
But in their discussions, most participants at the January 24-25 meeting of the Federal Open Market Committee (FOMC) continued to expect the Fed would follow a plan approved in June to return its bloated balance sheet to normal.
Under that plan, before the central bank lifts its ultra-low key interest rate, stuck near zero since December 2008, it would likely stop reinvesting payments on its securities holdings.
“Sometime after the first rate increase,” the Fed would begin selling those holdings “over a period of three to five years,” the minutes said.
The Fed announced it would hold its exceptionally low federal funds rate through 2014. Under that timeframe, the Fed would normalize its balance sheet between 2018 and 2020.
“Most participants saw sales of agency securities starting no earlier than 2015,” the minutes said.
The minutes showed the Fed remained divided over the direction of monetary policy.
A few members said that current and prospective economic conditions — including elevated unemployment and inflation at or below the Fed’s 2.0 per cent goal — “could could warrant the initiation of additional securities purchases before long”.
Other members indicated that such policy action could become necessary if the recovery lost steam or if inflation seemed likely to remain below its mandate-consistent rate over the medium run.