Fed plans to end asset purchases in October

The Federal Reserve has decided to end its asset purchase program in October if the U.S. economy stays on track, according to the minutes of the Fed's latest monetary policy meeting released on Wednesday.

"If the economy progresses about as the Committee expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting," the minutes of the Fed's June 17-18 meeting said.

This is the first time the Fed has clarified the exact end date of its open-ended asset purchase program, also known as QE3, which was launched in September 2012 to push down long-term interest rates and stimulate the U.S. economy.

The Fed has been trimming its asset purchase program by 10 billion U.S. dollars every policy meeting this year, as the economy gradually picks up. The central bank is currently buying 35 billion U.S. dollars of U.S. Treasuries and mortgage-backed securities a month.

The Fed is expected to continue to reduce its asset purchases by 10 billion dollars for each of its July and September policy meetings, and end the program in the October meeting with a final reduction of 15-billion-dollar purchases, according to the minutes.

Analysts said the end of asset purchases will have no bearing on the timing of the first interest rate hike. The Fed has said it is appropriate to keep its benchmark short-term interest rates near zero "for a considerable time" after the asset purchase program ends.

There is "no mechanical formula for what a considerable time means," Federal Reserve Chair Janet Yellen said in a press conference last month, adding that it depends on how the economy progresses. Most market participants predict the central bank will wait until mid-2015 to start raising interest rates.

The minutes showed that Fed officials had deep discussions about how to hike interest rates when the time comes. Fed officials generally agreed that the rate of interest on excess reserves (IOER) that banks hold at the Fed should play a "central" role in monetary policy normalization and set a ceiling for its target interest rate.

The overnight reverse-repo facility, a measure for non-bank institutions to make deposits at the Fed, will have an interest rate set below the IOER rate and help firm the floor for its target interest rate.

The spread would be "near or above the current level of 20 basis points" and give the Fed adequate control over market interest rates, the minutes said.

Most Fed officials also agreed to reinvest the proceeds of securities that mature on its balance sheet until interest rates had been increased.

The minutes said that the U.S. economy was "rebounding" in the second quarter following "a surprisingly large decline in real GDP" in the first quarter of the year.

Fed officials continued to expect the U.S. economy to expand over the next two and a half years as a result of accommodative monetary policy, diminished drag from fiscal restraint, further gains in household net worth, and rising employment and wages.

The U.S. employers added 288,000 jobs in June, posting the fifth consecutive month with job gains above 200,000, and the unemployment rate dropped to an almost six-year low of 6.1 percent, the latest sign that the world's largest economy is strengthening, the Labor Department said last week.