Most Fed Members See Bond Taper This Year: Fed Minutes

By Yasin Ebrahim

Investing.com – Most Federal Reserve policymakers believe it could be appropriate for the central bank to start reducing bond purchases this year should the economy continued its recovery.

At the conclusion of its previous meeting on July 28, the Federal Open Market Committee kept its benchmark rate in a range of 0% to 0.25% and the pace of bond purchases at a $120 billion monthly clip.

"[M]ost participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year," the Fed's minutes showed.

The Federal Reserve has set a threshold of “substantial further progress” to start scaling back bond purchases. The majority of Fed members believe this threshold has been met on inflation, but there is still a way to go on maximum employment.

"Most participants judged that the Committee's standard of 'substantial further progress' toward the maximum-employment goal had not yet been met," according to the Fed's minutes. "Most participants remarked that this standard had been achieved with respect to the price-stability goal."

Ahead of the minutes, the Fed, while acknowledging the economy was making progress toward the threshold, had been reluctant to provide any clues on a timeline.

"[FOMC] participants expected that economy will continue to move our standard of substantial further progress [...] the timing and change of our asset purchases will depend on incoming data," Powell said last month.

Since the July meeting, the labor market has improved as the economy generated 943,000 jobs last month. While the pace of inflation, which Powell has repeatedly said is likely to be transitory, appears to be reaching a peak.

The consumer price index in July was 0.5%, the largest decline in month-to-month inflation in 15 months.

The resurgence of Covid-19 cases, meanwhile, has also cast doubt on the pace of recovery amid recent data including retail sales for July, pointing to weakness in the consumer.

"In discussing the uncertainty and risks associated with the economic outlook, many participants remarked that uncertainty was quite high, with slowing in progress on vaccinations and developments surrounding the Delta variant posing downside risks to the economic outlook," the minutes showed.

The minutes come just a week ahead of Powell's address at Jackson Hole symposium, where many expect the fed chief to lay out the carpet for a tapering announcement by year-end.

"We continue to expect a tapering announcement from the FOMC in Q4, most likely in December, with rising risk of November. We believe tapering will start in January and last 11 months for Treasury purchases and six months for MBS," Nomura said in a note.

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