Federal Reserve officials expected taper to start next month with the process concluding in mid-2022, minutes show
- Fed officials last month left interest rates near zero but signalled they were close to beginning to scale back their US$120 billion in monthly asset purchases
- The taper process could commence in either mid-November or mid-December, FOMC minutes from last month showed
Federal Reserve officials broadly agreed last month they should start reducing emergency pandemic support for the economy in mid-November or mid-December amid increasing concern over inflation.
“Participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate,” minutes of the September 21-22 Federal Open Market Committee (FOMC) meeting released on Wednesday said.
“Participants noted that if a decision to begin tapering purchases occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December.”
The minutes showed Fed officials wrestling with puzzles squarely within their mandate. They discussed whether labour supply would bounce back to 2019 levels and continued to bet that elevated inflation would subside as supply constraints in markets for products and people eased up. The decision to taper this year is also about managing the risk that they are wrong on prices.
“There is a bit of a pivot happening where there is a worry that transitory inflation might be transitioning to concern that it might be structural,” said Michael Pond, head of global inflation market strategy at Barclays. “Even the doves on the committee want to make sure that inflation expectations and financial conditions don’t start to cause alarm.”