Federal Reserve officials decided to take a step back from their stimulus amid growing concerns about the effectiveness of the program and continued improvement in the job market.
Minutes of the Fed’s December meeting indicates that central bank officials believed that the job market would continue to improve, making that meeting the right time to start slowing down the “quantitative easing” it had put in place for the last several years.
However, they also reveal that the Fed is not in a huge hurry to shut off that support, as many officials favored a “modest” first reduction, paired with a close eye on economic data to decide when to reduce the easing further. Officials “stressed” the need to communicate that the shrinkage was not on a preset course, but dependent on the economic data coming in.
After its December meeting, the Fed agreed to buy $10 billion less of bonds each month, while indicating it could continue trimming those purchases each month if the economy continues to improve. Before that change, the Fed had been buying $85 billion in government and mortgage bonds each month, in an effort to further lower borrowing rates and boost the economy.
In the last few months, the job market has posted steady gains, as over 200,000 jobs were created in both October and November, as the unemployment rate dipped to 7 percent.
But beyond the positive economic data, the Fed was also encouraged to begin slowing its easing efforts amid growing doubts of its effectiveness. According to the minutes, most participants at the December meeting agreed that the effectiveness of the purchase program was “likely declining” as it continued. Although some thought it was as effective as ever.