UPDATE 2-Fed board met to discuss monetary policy ahead of FOMC

Wed Apr 30, 2014 4:19pm EDT

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(Adds economist comment, policy decision)

By Michael Flaherty and Ann Saphir

WASHINGTON/SAN FRANCISCO, April 30 (Reuters) - The Federal Reserve Board gathered to discuss "medium-term monetary policy" hours before the Fed's broader policymaking group began its regular two-day meeting on Tuesday, a hint that changes to the U.S. central bank's exit strategy may be in the offing.

Closed Fed board meetings are common, but of more than 100 such meetings since 2009, only six have involved monetary policy discussions, according to meeting notices posted on the Fed's website.

The last time the Fed board held a meeting on medium-term monetary policy was in December 2011. The following month the Fed's policy-setting panel formally adopted an inflation target for the first time.

The Fed's board held four other meetings on mid-term monetary policy in 2011, including in April 2011 and on the mornings of the Fed's June 2011 Federal Open Market Committee meeting, at which Fed officials agreed to a formal and detailed exit strategy from super-easy policy.

The Fed gave no hint of that agreement when it released its policy statement following the June 2011 meeting, but disclosed the new exit strategy only later, when it released the meeting's minutes. The strategy lays out the steps the Fed will take once it begins normalizing policy, and Fed officials have said the plan remains their working blueprint.

But given the turmoil of intervening years, including the purchase of more than $1 trillion of long-term securities not contemplated when the exit strategy was first crafted, Fed watchers have speculated the blueprint may be due for a revamp.

The Fed's announcement on Wednesday of a well-telegraphed cut in its massive bond-buying stimulus contained no clues on that front.

When and how the Fed will lift interest rates from near zero, where they have been since December 2008, is key to investors.

When the minutes to this most recent meeting are released in three weeks, they "may well elaborate on the Fed's updated thinking regarding the mechanics of the exit strategy," JPMorgan economist Michael Feroli said in a note to clients, citing the Fed board meeting on Tuesday.

Most closed Fed board meetings are routine and procedural, involving standard discount rate talks and enforcement matters.

But on Tuesday the Fed issued a so called "Sunshine Meeting" notice on its website noting the board had met to discuss "medium-term monetary policy issues." The Fed is required to disclose such meetings, but not any details on them.

The meeting came a few hours before the FOMC began meeting on the U.S. economy and the Fed's monetary policy stance.

The FOMC, which is comprised of all Fed board members and five of the 12 regional Fed presidents, unanimously backed a decision to continue to reduce the Fed's bond-buying program and to keep short-term rates near zero for a "considerable time" after the bond-buying ends. (Reporting by Michael Flaherty; Editing by Chizu Nomiyama and Paul Simao)

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