The Federal Reserve intends to wrap up an unprecedented effort to stimulate the economy in October, drawing the curtain on one of the most controversial periods in the bank’s 100-year history.
Minutes released Wednesday from the bank’s June meeting showed officials plan to cease their massive bond purchases after a policy meeting in October.
The end of the stimulus had been expected, as the central bank had been gradually paring down the size of the bonds it is buying each month.
In June, the Fed trimmed the size of the bond purchases by $10 billion, as it had at each meeting since announcing the “tapering” of the bond buys at the end of 2013.
Currently, the Fed is buying $35 billion in bonds per month, down from the $85 billion per month under the original program.
Financial markets, which have surged to record highs this summer, took Wednesday’s news in stride, with both the Dow Jones and the Nasdaq indexes posting gains at the end of the day.
The calm response is a far cry from late 2013, when the prospect of ending the bond buys sent markets into a tailspin.
But now, with evidence mounting of a steady recovery in the economy, investors appear ready to close the books on a policy that began under former Fed Chairman Ben Bernanke during the depths of the recession.
With fears of an economic depression running high, Bernanke pushed the bank’s power to new limits with a series of drastic policy experiments that critics viewed as reckless.
After lowering interest rates as far as possible, the Fed turned to buying hundreds of billions of dollars of bonds in a bid to further lower borrowing costs and to pump life into the economy. The era also saw the Fed begin to dabble with new transparency initiatives, such as holding regular press conferences after policy decisions.
Those efforts have exposed the Fed to heightened levels of scrutiny from congressional Republicans, who argue the bank’s “easy money policies” have laid the groundwork for dangerous inflation.
It has fallen to Bernanke’s successor, Janet Yellen, to lead the Fed through the final phase of the bond purchasing program.
The decision to set a final exit date for the bond purchases indicates bank officials are optimistic the economy will continue on its positive path even though officials expressed some lingering concerns.
Several Fed officials brought up the slow recent growth in the housing market, which is happening despite low mortgage rates. They cited a host of potential reasons for the slowdown, including low demand from younger homebuyers who may still be struggling with student loan debt, or more permanent changes in the way people view housing due to “evolving lifestyle preferences.”
However, Fed officials generally agreed the economy was coming back after a dismal first quarter that saw the economy contract by its largest amount since the recession.
“Over the next two and a half years, they continued to expect economic activity to expand at a rate sufficient to lead to a further decline in the unemployment rate,” the minutes stated.
Officials noted that strong market conditions are also supporting economic activity. But some at the Fed questioned whether investors enjoying record stock-market highs have become complacent.
“Participants also discussed whether some recent trends in financial markets might suggest that investors were not appropriately taking account of risks in their investment decisions,” the minutes stated.
“In particular, low implied volatility in equity, currency, and fixed-income markets as well as signs of increased risk-taking were viewed by some participants as an indication that market participants were not factoring in sufficient uncertainty about the path of the economy and monetary policy.”
Fed officials agreed to continue monitoring markets closely and to emphasize in public communications that the central bank’s policy moves remain reliant on the economic trajectory.
As the Fed looks to return monetary policy to a more normal state, officials have said they do not plan to hike interest rates as soon as they stop buying bonds.
The minutes indicated officials are eyeing another, previously unused tool in the Fed toolbox — changing the amount of interest the Fed pays banks to hold their reserves — as a key piece in that effort.
— This story was updated at 4:46 p.m.