Most of the 19 top Federal Reserve officials said last month that they thought it would be appropriate to start reducing the pace of its asset purchases this year, according to minutes of their policy meeting released on Wednesday.
These officials said they thought the Fed’s benchmark of “substantial further progress” criterion had been met in terms of inflation and was “close to being satisfied” in terms of the employment goals.
The Fed is buying $120 billion per month of Treasurys and mortgage-backed securities each month to put downward pressure on long-term interest rates.
The minutes show that there were sharp divisions on the tapering questions. It wasn’t clear whether the Fed would be prepared to announce at tapering at the next meeting in September.
The “divergent views and uncertainty suggest tapering announcement will come no sooner than November,” said Ian Shepherdson, chief economist at Pantheon.
Others, like Josh Shapiro of MFR Inc., said the door was open for a September announcement “particularly if the August jobs report is a strong one.” The job report will be released on Sept. 3.
Fed Chairman Jerome Powell may provide a roadmap when he speaks at the Fed’s summer retreat in Jackson Hole in late August.
“Several” Fed officials said they thought a reduction in the pace of purchases should not start until next year. Also in the cautious camp. a “few” Fed officials cautioned that debate over tapering should consider that the spread of the delta variant could cause delays in returning to work and school and damp the economic recovery.
Hawks were worried that recent high inflation readings might be more persistant.
In an interview with MarketWatch earlier on Wednesday, St. Louis Fed President James Bullard pressed for the Fed to begin tapering. He said the economy has already met the criterion of “substantial” progress.
Most Fed officials said they wanted to reduce the net purchases of Treasurys and MBS proportionally in order to end both sets of purchases at the same time. Several others saw benefits in reducing the MBS purchases more quickly that Treasury purchases as the “exceptionally strong” housing sector didn’t need “real or perceived” support from the Fed’s MBS purchases.
Fed officials were concerned that investors would see a “mechanical” link between tapering and a hike in the Fed’s benchmark rate.
In that vein, after the July meeting Fed Vice Chair Richard Clarida gave a speech saying he didn’t see the need for any hike in interest rates until early 2023.
Stocks moved lower after the minutes were released, with the Dow Jones Industrial Average
down 140 points.