NEW YORK (Reuters) - Most Federal Reserve officials prefer to raise benchmark interest rates before selling assets when the time comes to tighten policy, minutes of their April meeting showed on Wednesday.
KEY POINTS: * During an extensive discussion of how the central bank might pull back its massive support for the world's largest economy, officials agreed they would eventual shrink the Fed's much expanded portfolio over the medium term, and that getting rid of mortgage-related debt would be a priority. * "A majority of participants preferred that sales of agency securities come after the first increase in the (Fed's) target for short-term interest rates," the Fed said. * "And many of those participants also expressed a preference that the sales proceed relatively gradually, returning (Fed holdings) to all Treasury securities over perhaps five years," the minutes said.
DAN DORROW, HEAD OF RESEARCH. FAROS TRADING, STAMFORD, CONNECTICUT:
Fed Chairman Ben "Bernanke answered a lot of questions during the press briefing last month and this document pretty much supports the consensus. The mention of QE3 being unlikely without a change in outlook is an interesting takeaway. It however did not provide any clues for when a rate hike might happen and confirms that policy will be reliant on incoming economic data."
TODD SCHOENBERGER, MANAGING DIRECTOR, LANDCOLT TRADING INC., LEWES, DELAWARE
"If inflation risk is indeed transitory, it's clearly rising enough to invite conversations about tightening sooner than they had anticipated.
"Now as a result, the recent inflation data we have received may provide the spark for the Fed to seriously consider to begin a tightening policy at the end of 2011."
DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS:
"The FOMC minutes from the April 26-27 meeting show some increase in concerns on inflation but the majority opinion still appears some way off advocating policy tightening, other than allowing QE2 to expire as scheduled at the end of Q2. The increase in inflation was generally expected to be transitory, and developments in commodity prices seen since the meeting should have strengthened that view. While risks to growth are seen as balanced, the minutes do show some concern over downside risks. The minutes also give some useful details on how eventual policy tightening will be implemented, (probably with short term rates rising before asset sales, which will be gradual) while stressing that having that discussion did not necessarily mean this would begin soon."
MARKET REACTION: STOCKS: U.S. stock indexes held gains BONDS: U.S. bond prices held steady at lower levels FOREX: The dollar was flat