The recent Fed minutes showed the first detailed discussion of just how the US central bankers plan to make their graceful exit from their massive build-up of securities holdings. The second round of quantitative easing will come to its well anticipated end next month. While one can never say never, the bar for launching a third dose is so far from current conditions (a return of deflation fears, a dive
in money supply growth and a climb in unemployment) that the next step, when it comes, is highly likely to be a move away from maximal stimulus. That should be a long way off; the minutes emphasized that merely discussing the strategy did not mean that it would happen soon. We see even the first tinkering?letting maturing issues roll off the books without reinvestment?as unlikely to happen until early next year.
Beyond that, the minutes revealed that confusion reigns on just how the Fed?s policy turn will be engineered.
