FOMC Meeting Minutes: Reduction of QE2 Size Discussed

Members of the Federal Open Market Committee (FOMC) discussed the possibility of reducing the $600-billion size of the second round of quantitative easing (QE2).

Minutes for the March 15 meeting stated the following: “A few members noted that evidence of a stronger recovery, or of higher inflation or rising inflation expectations, could make it appropriate to reduce the pace or overall size of the purchase program.”

These members are likely to be Dallas Fed Chief Fisher and Philadelphia Fed Chief Plosser, two noted hawks and members of the FOMC in 2011.

However, the doves of the FOMC – people like Board of Governors member Janet Yellen and NY Fed Chief William Dudley – disagreed. The minutes stated: “several [other members] indicated that they did not anticipate making adjustments to the program before its intended completion.”

Chairman Ben Bernanke likely sided with the doves. Moreover, there are generally more doves than hawks on the FOMC. Therefore, the size of QE2 will likely stay the same.

During the meeting, hawks like Plosser and Fisher voted in line with Bernanke, meaning they did not dissent to the official decision and statement of the March meeting.

However, in public speeches after the meeting – and as shown here in the meeting minutes – they are openly discussing the possibility of cutting down QE2.

In the previous FOMC meeting in January, the minutes stated the following: “A few members noted that additional data pointing to a sufficiently strong recovery could make it appropriate to consider reducing the pace or overall size of the purchase program.”

This is statement is similar to the one made in March. However, whereas in January the hawks said “additional data pointing to a sufficiently strong recovery” could prompt consideration of reducing QE2, in March they said “evidence of a stronger recovery” could prompt such talks, implying that the current evidence of strong recovery is already enough to prompt the FOMC to consider reducing QE2’s size.