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.”

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. Chair Jerome Powell told reporters during a post-meeting press conference the process could start as soon as November and would likely end around mid-2022. 

“The minutes make it clear that the Fed will announce tapering at the next FOMC meeting, on November 2-3, unless disaster strikes,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Investors took the minutes in their stride. Stocks rose while the yield on 10-year Treasuries declined and the two-year rate – which is more sensitive to policy moves – rose.

“The guidance in the September FOMC minutes is clear: the cost of quantitative easing now outweighs the benefits,” economists Anna Wong and Andrew Husby said. “That means they will very likely look through the weak September jobs report. Taper will be almost certainly announced at the November meeting – and could even begin as early as that month.”

Officials discussed an illustrative tapering path: “The path featured monthly reductions in the pace of asset purchases, by US$10 billion in the case of Treasury securities and US$5 billion in the case of agency mortgage-backed securities.”

Fed officials commented that the path “provided a straightforward and appropriate template” they might follow, according to the minutes.

The record of the closed-door debate showed US central bankers grappling with high uncertainty on both sides of their mandate for full employment and stable prices.

Inflation is rising at the fastest pace in years and is well above the Fed’s 2 per cent goal. Some officials say supply bottlenecks and production tangles – blamed on disruption as the economy reopens from the pandemic – could sustain price pressures for longer than they expected. Consumer prices rose 5.4 per cent in September from a year earlier, the Labor Department reported on Wednesday.

“Most participants saw inflation risks as weighted to the upside because of concerns that supply disruptions and labour shortages might last longer and might have larger or more persistent effects on prices and wages than they currently assumed,” the minutes said.

In addition, Fed staff said risks had worsened, including the possibility that “longer-run inflation expectations would move appreciably higher and lead to persistently elevated inflation.”

Fed officials last month projected price pressures would ease back close to their goal next year, but nine of 18 forecast at least one interest-rate increase during 2022, up from seven in June. The FOMC left rates near zero and said they would stay there until the labour market has reached maximum employment and inflation was on track to exceed 2 per cent “for some time.”

“Various participants stressed that economic conditions were likely to justify keeping the rate at or near its lower bound over the next couple of years,” the minutes said. “In contrast, a number of participants raised the possibility of beginning to increase the target range by the end of next year,” because they saw the thresholds for lift-off potentially being met by that time.