"Without giving more of an indication of when rates will rise, [the minutes] make the Fed continue to appear dovish, which hurts the dollar"
- Lennon Sweeting, a dealer at USForex
Minutes from the last month's FOMC meeting hint that the Federal Reserve is preparing for the end of quantitative easing after the FOMC's October meeting, given the economy continues to improve as the central bank expects. Since the Fed began winding down its asset buying programme, it has cut the pace of purchases by $10 billion with each meeting, meaning that the final reduction would come with a single $15 billion cut. Fed policy makers expressed confidence that moderate economic expansion will continue, while unemployment and inflation will gradually move towards the Fed's targets. Also, most officials agreed the interest rate in excess reserves banks keep on deposit at the Fed should play a major role in the exit from monetary stimulus, while the overnight reserve purchase facility "could play a useful supporting role". Nevertheless, there was no specific indication concerning when the central bank plans to raise interest rates, currently expected in the middle of next year.
The Fed's exit strategy is complicated as its stimulus programs flooded the financial system with $2.6 trillion that has ended up back at the Fed as excess bank reserves. With such an amount of money on hand, U.S. banks have little need to borrow from each other in the federal funds market, stifling a necessary interest rate tool.
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