Carrier: Fed Purchases May Hint At Rate Policy

Credit unions that are wondering when the Federal Reserve’s current low-interest rate policy may end should look to the level of the central bank’s asset purchases for clues, NAFCU Chief Economist David Carrier said Wednesday.

Carrier made his comments following the release of minutes from the Federal Open Market Committee’s Jan. 29-30 meeting. At the conclusion of that meeting, the FOMC issued a policy statement reiterating its commitment to keeping the current federal funds rate target range in place as long as the unemployment rate is above 6.5 percent and inflation is below 2.5 percent. The group also restated its commitment to purchasing additional agency mortgage-backed securities at a pace of $40 billion a month, purchasing longer-term Treasury securities at a pace of $45 billion per month, reinvesting principle payments and rolling over maturing Treasury securities.

However, minutes from the meeting show there was anything but uniform agreement about current policy. Several FOMC members said the central bank should be prepared to vary the pace of asset purchases depending on changes in the economic outlook or the central bank’s evaluation of the efficacy and costs involved with those purchases.

Carrier noted that those views could indicate the Fed may “dial back” somewhat from its earlier stance of maintaining policy accommodation until the unemployment rate and inflation thresholds are attained. “If the economy appears to be improving before the threshold is attained, the committee may reduce asset purchases to something less than the $85 billion a month it committed to earlier, and that could trigger an increase in interest rates” he said.

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