Most Federal Reserve officials agree that they could start slowing the pace of bond purchases later this year, according to minutes from the U.S. central bank’s July 27-28 Federal Open Market Committee meeting.
"Various participants commented that economic and financial conditions would likely warrant a reduction in coming months," according to the meeting minutes. "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 September 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 mortgage-backed securities purchases proportional.
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 pre-pandemic trend of running below the central bank’s 2% target.
The minutes indicate that officials still see room for labor market improvement. Job gains have been strong, averaging 617,000 a month through July. The U.S. unemployment rate stood at 5.4% last month, but broader measures still show slack.
The employment-to-population ratio for workers between 25 and 54 years old was 77.8% last month compared to 80.5% at the start of 2020, while Hispanic and Black unemployment rates remain high at 6.6% and 8.2%.
Fed officials cut their benchmark lending rate to zero in March 2020 and announced they would buy $200 billion U.S. of agency mortgage-backed securities and $500 billion U.S. of Treasuries to support market functioning.
By December 2020, they realigned their guidance saying they would purchase $80 billion U.S. a month in Treasuries and $40 billion U.S. a month on mortgage securities "until substantial further progress has been made toward its maximum employment and price stability goals."
The asset purchases have lowered longer-term interest rates and helped fuel a rise in housing prices and other financial assets, with one-month gains in home price indices breaking records while stock indexes trade near record highs.
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