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The Federal Reserve Board has been patient with monetary policy tightening, minutes show

According to the minutes released Wednesday, the Federal Reserve Board talked about tapering at a recent meeting, but few seemed to be in a hurry to move the process forward.

The Federal Open Market Committee’s June 15-16 meeting summary provided a glimpse into discussions about when central banks should begin to slow down bond purchases.

Some members pointed out that the economic recovery was faster than expected, accompanied by a significant rise in inflation. Both indicate that the Fed’s foot has been removed from the policy pedal.

But the general idea was that we shouldn’t rush and the market should be well prepared for any changes. According to the minutes, most member states agreed that the economy had not yet met the “substantial further progress” benchmark set by the Fed for a major shift in policy.

“At future meetings, participants agreed to continue to assess economic progress towards the Commission’s goals and discuss plans to coordinate the path and composition of asset purchases,” the minutes said. Stated. “In addition, participants reiterated their intention to provide notice long before the announcement to slow down purchases.”

The document said some officials saw a tapering condition that was “satisfied somewhat faster than expected,” while others said the FOMC “assessed progress towards the goal and planned asset purchases.” You have to be patient to announce the changes. “

Markets showed little reaction, equities rose and government bond yields fell.

“The minutes of the Fed’s mid-June FOMC meeting weren’t as hawkish as we thought,” said Paul Ashworth, chief US economist at Capital Economics. “Especially, there seems to be limited support to start declining monthly asset purchases quickly.”

At the meeting, the Commission held short-term interest rates close to zero, but also indicated that it could otherwise adjust its policies in the coming months.

The Federal Reserve’s policy-making group has fixed benchmark rates in the range of 0% to 0.25%. That was as expected by the market.

However, at a post-meeting press conference, Chairman Jerome Powell showed that members of the committee had the first discussion about slowing down the central bank’s monthly bond purchases. Currently, the Fed has purchased at least $ 80 billion in Treasury bills and $ 40 billion in mortgage-backed securities.

In the weeks following the meeting, some officials said they believe it was time to devise a process on how these purchases would be reduced and eventually eliminated.

The meeting summary was expected to provide further clues to the Commission members’ thoughts on when the tapering would begin.

However, the minutes were rarely added to the public dialogue about the pace of asset purchases. This basically indicates that the authorities are “talking about tapering,” reflecting what has become a popular market idiom, but little other progress. Some members discussed the possibility of reducing mortgage purchases before the Treasury, but nothing was decided.

In addition to curbing interest rates and not announcing significant tapering moves, Fed members have adjusted their economic growth and inflation forecasts higher.

However, the general sentiment was that the current inflationary pressures would ease in the coming months, but not before the 3.4% surge this year.

These upward forecasts helped Fed officials advance their initial forecasts for rate hikes in 2023, but market prices are now showing at least one rise in 2022.

Members also discussed recent movements in the money markets, especially repo transactions where banks exchange high-quality collateral, such as government bonds, for reserves. Trading has shown record demand over the last few weeks, and Fed officials have generally expressed support for permanent repo facilities as a backstop to facilitate market manipulation.

At the meeting, the FOMC approved an increase of 5 basis points for interest paid by banks on excess reserves and nighttime repo transactions.

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The Federal Reserve Board has been patient with monetary policy tightening, minutes show

Source link The Federal Reserve Board has been patient with monetary policy tightening, minutes show

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