Fed Months Away from Tapering Decision: Minutes

Board members of the United States Federal Reserve are moving closer to a decision on tapering the massive asset purchases, currently at $120 billion a month, which were introduced to support economic recovery from the coronavirus pandemic.

The Federal Open Market Committee (FOMC) July meeting minutes showed that most members think limiting asset purchase could begin this year, while a majority see the beginning of tapering early next year.

This comes in line with the recent remarks by Fed officials that showed a growing expectation of tapering a soon as possible, while other FOMC members think that tapering would be more appropriate with better conditions in the labor market, or more signs of the anticipated substantial further progress.

With the next FOMC meeting scheduled to take place in September, it would be a couple of a months difference of whether the tapering could begin this fall or in the winter, early next year, especially since several FOMC members indicated that a reduction in the pace of asset purchases was more likely to become appropriate early next year.

The minutes also showed that there is a great deal of uncertainty about the economic rebound, especially due to the risks of the spreading coronavirus Delta variant.

The work uncertainty was mentioned nine times in the 15-page document, which clearly stated that during the meeting, many participants remarked that uncertainty was quite high, when discussing the uncertainty and risks associated with the economic outlook.

Uncertainty in the progress towards price stability, which aims at achieving a sustainable 2% inflation rate and tolerating consumer prices increasing at a faster pace for some time.

Although no decision was taken regarding tapering, the discussion has already begun, and most Federal Reserve officials agreed they could start reducing the pace of the bond-buying purchases this year, due to the rise in inflation and the decline in unemployment.

It is worth noting that reducing asset purchases would come before any interest rate hike, as repeatedly explained by Fed Chair Jerome Powell, who also indicated that the Fed would not surprise markets with cutting asset purchases, giving proper signals before such a decision.

The minutes showed that Fed officials have already begun the discussion on how asset purchases might be adjusted once economic conditions met the standards, considering the impact of the asset purchases and the subsequent differences and interpretations.