Fed could delay ‘tapering’ by cutting rates further

The US’s monetary policy committee considered cutting the bank deposit rate at its October meeting in an effort to cut the assumed link between quantitative easing (QE) and interest rates.

Markets have reacted negatively this year to the idea of the US Federal Reserve reducing its stimulus programme, which currently means it pumps $85bn (£52.8bn) a month into the economy.

In its October meeting, the minutes of which were released last night, Federal Open Market Committee (FOMC) members suggested cutting the rate at which banks can deposit cash with the central bank even further than its current level of 0.25 per cent. This would, it was hoped, encourage banks to put more money to work in the economy.

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Investors have linked the forthcoming reduction in QE to a subsequent rise in interest rates, which has hurt bond markets in particular, but the FOMC said it was seeking to break the link between the two aspects of policy.

The FOMC also said it was likely to begin reducing, or ‘tapering’, the rate of quantitative easing in the coming months, but members were split as to how such a process would work.