marketwatch
EXCERPTS FROM
Greg Robb, MarketWatch

WASHINGTON — Federal Reserve revealed in the minutes of its June meeting released Wednesday that it has decided to end its asset-purchase program in October if the economy stays on track.

According to the new plan, the Fed will make a $15 billion final reduction at its October meeting, after trimming it by $10 billion at each meeting up to that point.

Fed officials said that members of the public had asked them if the Fed would end the program in October or with a final $5 billion reduction in December.

Most Fed officials said that the exact end of the tapering issue will have no bearing on the timing of the first rate hike. The Fed has said that rates would remain near zero for a “considerable time” after the Fed halts its program of bond purchases.

An end of the asset purchases will “set the clock on eventual tightening — which we think could start as soon as March 2015,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.

Stocks DJIA +1.13%  dipped immediately after the Fed minutes were released but quickly moved higher. Bond yields 10_YEAR -0.12%  also had a brief move higher after the report.

The minutes also reveal that Fed officials had a lengthy discussion of its exit strategy.

The central bankers generally agreed to keep reinvesting the proceeds of securities that mature on its balance sheet until after it had hiked interest rates.

Fed officials also agreed that the rate of interest on excess reserves would play a “central role” in moving rates higher when the time comes. It will have an overnight reverse-repo facility with an interest rate set below the IOER rate. The spread would be “near or above the current level of 20 basis points and give the Fed adequate control over interest rates.”

A reverse repo is when the Fed accepts cash from counterparties such as banks and money-market funds on an overnight basis in return for a security.

Responding to some criticism that the Fed’s overnight repo facility might become too large and drown out private market participants, the central bankers discussed some design features that might limit its size.

Several Fed officials said that they don’t think the facility will become a permanent policy tool.

Fed officials “signal a good deal of comfort in managing policy with a high balance sheet,” said Eric Green, head of U.S. rates and economic research at TD Securities.

There is “no appetite whatsoever to sell assets,” he noted. The Fed holds a record $4.38 trillion of securities.

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