Minutes show Fed preparing for taper starting this year
WASHINGTON — Most Federal Reserve officials agreed last month they could start slowing the pace of bond purchases later this year, judging that enough progress had been made toward their inflation goal, while gains had been made toward their employment objective.
“Various participants commented that economic and financial conditions would likely warrant a reduction in coming months,” minutes of the Federal Open Market Committee’s July 27-28 gathering, released Wednesday, said. “Several others indicated, however, that a reduction in the pace of asset purchases was more likely to become appropriate early next year.”
The minutes also showed that most participants “judged that it could be appropriate to start reducing the pace of asset purchases this year.”
U.S. central bankers next meet Sept. 21-22. While the record shows that they don’t yet have agreement on the timing or pace of tapering asset purchases, most had reached consensus on keeping the composition of any reduction in Treasury and mortgagebacked securities purchases proportional.
“The FOMC minutes again reveal a wide spread of opinion on the question of the timing, speed and structure of the upcoming tapering,” Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd. said after the release.
The minutes showed split views on the durability of faster inflation as well as on key areas of policy making.
While the recent surge in consumer prices has grabbed policy makers’ attention and prompted wide agreement on pulling back on asset purchases, “several” meeting participants were still worried that inflation could slump back into the prepandemic trend of running below the 2% target.
On the labor front, officials saw progress — yet the late-July discussion also showed uncertainty over both near- and medium-term labor market slack, given the job destruction tied to the pandemic.
Policy choices going forward are also likely to be influenced by new appointees to the Fed Board as the Biden administration moves to fill as many as four positions by early 2022.
“Several participants emphasized that employment remained well below its prepandemic level and that a robust labor market, supported by a continuation of accommodative monetary policy, would allow further progress toward” labor-market goals, the minutes said. “Several participants also commented that price increases concentrated in a small number of categories were unlikely to change underlying inflation dynamics sufficiently to overcome the possibility of a persistent downward bias in inflation.”
Treasuries advanced after the release, though remained down for the session, with 10-year yields at 1.28% as of 3:47 p.m. in New York, compared with about 1.29% before the release. The S&P 500 Index of equities slumped 0.8%.
Fed policy makers have differed publicly in the weeks since the meeting over when the central bank should start tapering, with some, like Minneapolis Fed President Neel Kashkari, wanting to a see a “few more” strong jobs reports and others, such as Boston Fed President Eric Rosengren, saying he’s open to announcing plans for a reduction at the next meeting if employment figures come in well.
“Many participants saw potential benefits” in ending the Fed’s bond buying before targets were hit for raising interest rates, the minutes showed.