While interest rate is like to stay in the 0-0.25% range, the Fed is considering exit from its QE program, but wants to make sure the timing is appropriate. In this environment, economic improvements should strengthen the USD as they would push for end of QE. Here is a a mention of this consideration from the FOMC meeting minutes for the May 1 meeting, released on May 22:

Review of Exit Strategy Principles

After the policy vote, participants began a review of the exit strategy principles that were published in the minutes of the Committee’s June 2011 meeting. Those principles, which the Committee issued to clarify how it intended to normalize the stance and conduct of monetary policy when doing so eventually became appropriate, included broad principles along with some details about the timing and sequence of specific steps the Committee expected to take. The participants’ discussion touched on various aspects of the exit strategy principles and policy normalization more generally, including the size and composition of the SOMA portfolio in the longer run, the use of a range of reserve-draining tools, the approach to sales of securities, the eventual framework for policy implementation, and the relationship between the principles and the economic thresholds in the Committee’s forward guidance on the federal funds rate. The broad principles adopted almost two years ago appeared generally still valid, but developments since then–including the change in the size and composition of SOMA asset holdings–suggested a need for greater flexibility regarding the details of implementing policy normalization, particularly because those details would appropriately depend at least in part upon future economic and financial developments. Also, because normalization still appeared to be well in the future, the Committee might wish to wait and acquire additional experience to inform its plans. In particular, the process of normalizing policy could yield information about the most effective framework for implementing monetary policy in the longer run, and thus about the appropriate size of the SOMA portfolio and level of reserve balances. In addition, several participants raised the possibility that the federal funds rate might not, in the future, be the best indicator of the general level of short-term interest rates, and supported further staff study of potential alternative approaches to implementing monetary policy in the longer term and of possible new tools to improve control over short-term interest rates.

Views differed regarding whether the best course at this point would be to simply acknowledge that certain components of the June 2011 principles had been overtaken by events or rather to formally revise the principles. Acknowledging that the principles need to be updated would help avoid possible confusion regarding the Committee’s intentions; waiting to update the principles would allow the Committee to obtain additional information before revising them. It was also mentioned that the public’s understanding of the likely exit process might not be improved if the Committee issued only a set of broad principles without providing detailed information on the steps anticipated for normalization. However, issuing revised principles relatively soon could give the public additional confidence that the Committee had the tools and a plan for eventually normalizing the conduct of policy. Moreover, one participant stressed that the Committee’s ability to provide forward guidance about the normalization process was a key monetary policy tool, and revised principles would permit use of that tool to help adjust the stance of policy. Participants emphasized that their review of the June 2011 exit strategy principles did not suggest any change in their views about the economic conditions that would eventually warrant beginning the process of normalizing the stance of monetary policy. At the conclusion of the discussion, the Chairman directed the staff to undertake additional preparatory work on this issue for Committee consideration in the future.

It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, June 18-19, 2013. The meeting adjourned at 1:05 p.m. on May 1, 2013.

FOMC Schedule: http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

The Fed Mandate/Objective:

Congress has established 3 objectives for the Fed. They are

1)      Maximum employment – no fixed rate but has a central tendency of 5.2-6.0%

2)      Stable prices – controlling inflation with 2% year-on-year target using the personal consumption expenditure (PCE) measurement.

3)      Moderate long-term interest rates

The FOMC decides on how to carry out these mandates, and the 12 Federal district banks carry them out.

Structure

The 12 Federal Reserve Banks form a major part of the Federal Reserve System, the central banking system of the United States. The 12 federal reserve banks together divide the nation into 12 Federal Reserve Districts, the 12 banking districts created by the Federal Reserve Act of 1913.[1] The twelve Federal Reserve Banks are jointly responsible for implementing the monetary policy set by the Federal Open Market Committee. Each federal reserve bank is also responsible for the regulation of the commercial banks within its own particular district. (wiki: http://en.wikipedia.org/wiki/Federal_Reserve_Bank).

Learn more about the 12 Federal Reserve Districts from the Federal Reserve website: http://www.federalreserve.gov/otherfrb.htm

Federal Open Market Committee (FOMC)

The committee within the Federal Reserve System that oversees open-market operations and makes monetary policy decisions.

The Federal Reserve Bank of New York president always sits on the Committee, and the other presidents serve one-year terms on a rotating basis. The rotating seats are filled from the following four groups of banks, one bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco.

All of the Reserve Bank presidents, even those who are not currently voting members of the FOMC, attend Committee meetings, participate in discussions, and contribute to the Committee’s assessment of the economy and policy options. The Committee meets eight times a year, approximately once every six weeks.

FOMC members

Ben S. Bernanke, Board of Governors, Chairman

William C. Dudley, New York, Vice Chairman

Elizabeth A. Duke, Board of Governors

Jeffrey M. Lacker, Richmond

Dennis P. Lockhart, Atlanta

Sandra Pianalto, Cleveland

Jerome H. Powell, Board of Governors

Sarah Bloom Raskin, Board of Governors

Jeremy C. Stein, Board of Governors

Daniel K. Tarullo, Board of Governors

John C. Williams, San Francisco

Janet L. Yellen, Board of Governors