Federal Reserve officials talked tapering at their most recent meeting, but few seemed in a rush to get the process going, according to minutes released Wednesday.
The Federal Open Market Committee’s June 15-16 meeting summary provided only a few new glimpses into talks about when the central bank should begin reducing the pace of its bond purchases.
Some members indicated that the economic recovery was proceeding faster than expected and was being accompanied by an outsized rise in inflation, both making the case for taking the Fed’s foot off the policy pedal.
However, the prevailing mindset was that there should be no rush and markets must be well prepared for any shifts. Most members agreed, according to the minutes, that the economy had yet to meet the “substantial further progress” benchmark the Fed has set out for any significant shifts in policy.
Fed keen to be 'well positioned' to act on inflation, other risks, minutes show
Federal Reserve officials last month felt substantial further progress on the U.S. economic recovery "was generally seen as not having yet been met," but agreed they should be poised to act if inflation or other risks materialized, according to the minutes of the central bank's June policy meeting.
TAPERING TIMELINE
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 start of that discussion, along with interest rate projections showing higher borrowing costs as soon as 2023, caused investors to anticipate the Fed will move faster than expected to end its support for the economy.
Long-term Treasury yields are near five-month lows, and the gap between those and shorter-term yields has been narrowing, a development often associated with skepticism about the outlook for longer-term economic growth.
What investors are wondering is how fast the discussion will spool out and when the actual "taper" may begin.
Several regional Fed policymakers have since said they felt the economy was near the point where the central bank should pull back. However, even some of them have indicated it will take several meetings to develop and announce a plan for reducing the bond purchases.
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 program beginning early next year.
Reference: CNBC, Reuters
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