U.S. Outlook: The Fed’s FOMC talks exit strategy in April

Posted By Scott Anderson In Economic Outlook | No Comments

The markets just got a big reminder that the era of extraordinary monetary accommodation may be in its final days.

Graph showing rising reserve balances at Fed banks. [1]According to the minutes from last month’s FOMC meeting, the topic of monetary normalization was front and center. But what policy tools the Fed will use is still being debated.

For more on the latest economic developments to watch, see higlighhts of my weekly economic analysis below, followed by a link to the full U.S. Outlook report, delivered on May 16, 2014.

Key observations:
  • The FOMC discussed four tools for raising and controlling short-term interest rates when it comes time to tighten policy.
  • Testing some of these tools, like the reverse repo market and term deposit facility, has already begun.
  • Early FOMC communication on the game plan for exit will help prevent market disruptions due to uncertainty and lack of credibility.
  • I am doubtful the Fed funds futures markets have it right on rate expectations.

Click here to read my full report. [2]

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URL to article: https://changematters.bankofthewest.com/2014/05/23/u-s-outlook-feds-fomc-talks-exit-strategy-april/

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[1] Image: http://blog.bankofthewest.com/wp-content/uploads/2014/05/graph_reserves_052314.jpg

[2] Click here to read my full report.: http://blog.bankofthewest.com/wp-content/uploads/2014/05/BankoftheWest_USOutlook_05_23_14.pdf

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