The Federal Reserve released the minutes of the June meeting of its Federal Open Market Committee (FOMC) on Wednesday afternoon. The minutes indicate that the FOMC plans to end its monthly asset purchases in October, “if the economy progresses about as the Committee expects.”

And what the committee expects is continuing low inflation, improving jobs numbers, and maintaining its current low (0 to 0.25%) federal funds rate.

On inflation the FOMC noted, “Consumer price inflation picked up in recent months, while measures of longer-run inflation expectations remained stable.” The committee noted that the consumer price index on both a total and core basis was about 2% in May.

On the jobs front, the minutes noted that because of a combination of recent downward surprises in the unemployment rate and weaker-than-expected real GDP, the Fed has “slightly lowered its assume pace of potential output growth this year and next and slightly decreased its assumption for the natural rate of unemployment over this same period.” That led to a downward revision in the medium-term forecast for GDP growth.

The discussion about normalizing rates focussed on which rates to use to effect the normalization and when and how to announce how the normalization will happen. Regarding which rates to use the minutes report:

Most participants agreed that adjustments in the rate of interest on excess reserves (IOER) should play a central role during the normalization process. It was generally agreed that an [overnight reverse repurchase] facility with an interest rate set below the IOER rate could play a useful supporting role by helping to firm the floor under money market interest rates.

And addressing how and when the normalization will occur the FOMC said:

It was observed that it would be useful for the Committee to develop and communicate its plans to the public later this year, well before the first steps in normalizing policy become appropriate. Most participants indicated that they expected to learn more about the effects of the Committee’s various policy tools as normalization proceeds, and many favored maintaining flexibility about the evolution of the normalization process as well as the Committee’s longer-run operating framework.

A more detailed plan is expected by the end of this year.

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