Fed Minutes Show Bankers' Plan for Tighter Money

NEW YORK (TheStreet) -- If a "gaffe" is Washington's description of what happens when a policy maker tells the truth, the minutes of the Federal Reserve's April meeting qualify as a capital "surprise."

Everyone knows the central bankers must be thinking about how to begin to tighten money by early next year, when the Fed will completely wind down the tens of billions of dollars of monthly bond purchases it uses to keep interest rates super-low, prop up the housing market and nurture the recovery.

The surprise is that the minutes released today show them actually admitting it.

The minutes also give some idea about what the first steps toward tightening might be -- even though the minutes shed little to no light on how soon the Fed might take them.

Score one for the Fed's oft-maligned communications strategy: the minutes don't bury the lede. Though the discussion apparently happened at the end of the two-day meeting in April 29 and 30, the section titled "Discussion of Financial Normalization" is at the top of the minutes for the Federal Open Market Committee.

Early steps are likely to be more measured than simply raising the federal funds rate, the minutes say. A presentation by the central bank's staff focused instead of tactics like adjusting the interest rate the central bank pays on banks' excess reserves, fixed overnight reverse repurchase operations (meaning, short-term buying and selling of assets), and expanding the term deposit facility, which lets regulators drain money from the banking system by paying interest to banks that will deposit money with the Fed.

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