FOMC keeps patient tone, minutes show
Ideal timing of taper remains uncertain
WASHINGTON: Federal Reserve officials last month felt substantial further progress on the US economic recovery “was generally seen as not having yet been met,” but agreed they should be poised to act if inflation or other risks materialised, according to the minutes of the central bank’s June policy meeting.
In minutes that reflected a divided Fed wrestling with new inflation risks but still relatively high unemployment, “various participants” at the June 15-16 meeting felt conditions for reducing the central bank’s asset purchases would be “met somewhat earlier than they had anticipated.”
Others saw a less clear signal from incoming data and cautioned that reopening the economy after a pandemic left an unusual level of uncertainty which required a “patient” approach to any policy change, stated the minutes, which were released on Wednesday.
Still, “a substantial majority” of the officials saw inflation risks “tilted to the upside,” and the Fed as a whole felt it needed to be prepared to act if those risks materialised.
“Participants generally judged that, as a matter of prudent planning, it was important to be well positioned to reduce the pace of asset purchases, if appropriate, in response to unexpected economic developments, including faster-than anticipated progress toward the Committee’s goals or the emergence of risks that could impede the attainment of the Committee’s goals,” the minutes stated, referring to the policy-setting Federal Open Market Committee (FOMC).
The minutes did little to clarify when the Fed will begin to change the monthly bond purchases and near-zero interest rates it put in place in the spring of 2020 to support the economy through the coronavirus pandemic and associated recession.
But it did show debate over those policies beginning in earnest, with Fed officials laying out a broadly divergent set of views about the risks the economy faces, the level of uncertainty, and even delving into details like whether to curb the purchase of mortgage-backed securities faster than that of US Treasury bonds.
“Monetary policy recalibration is now on the table,” wrote Bob Miller, BlackRock’s head of fixed income for the Americas, noting the “substantial dispersion of opinions” at the central bank.
At its meeting last month, the FOMC shifted towards a post-pandemic view of the world, dropping a longstanding reference to the coronavirus as a constraint on the economy and, in the words of Fed chair Jerome Powell, “talking about talking about” when to shift monetary policy as well.
The FOMC meets eight times a year, with the next two meetings scheduled for July 27-28 and Sept 21-22. In the interim, the central bank will hold its annual research conference in Jackson Hole, Wyoming, a setting that Fed chiefs have often used to signal policy changes.
Economists polled by Reuters expect the Fed to announce a strategy for tapering its asset purchases in August or September, with the first cut to its bond-buying programme beginning early next year.