On March 19, 2019, the Federal Reserve Board building on Constitution Avenue in Washington, D.C. is photographed. Leah Millis/Reuters Reuters, WASHINGTON, July 6 – When the Federal Reserve publishes minutes from last month’s key meeting on Wednesday, more details on when and how the central bank will begin to reduce its pandemic-induced bond-buying frenzy are expected to surface. At the June 15-16 meeting, Fed policymakers began debating whether or not to reduce their $120 billion monthly bond purchases, and since then, most Fed policymakers have offered broadly bullish views of an economy that, by many measures, is sprinting out of a recession triggered by the global COVID-19 pandemic. The current run of job gains and above-target inflation has been interpreted by some as “substantial further progress” toward the Fed’s maximum employment and price stability targets, a benchmark that would allow them to begin tapering their asset purchases. That judgment could be backed up by data collected since their encounter. According to the Labor Department’s carefully watched employment report released on Friday, the United States added 850,000 jobs last month, a better-than-expected uptick in hiring following two months of sluggish gains. find out more Meanwhile, the Fed’s favored inflation indicator has risen at the quickest annual rate since 1992 and is well above the 2 percent target. find out more Even before the newest economic statistics, Wednesday’s briefing will likely provide more clarity on how near Fed officials thought the central bank was to meeting its targets. It could also reveal the extent of the divide between those who believe recent high inflation levels are temporary or long-term. “The minutes will undoubtedly be interesting,” said Sam Bullard, a Wells Fargo senior economist. “Any specifics regarding the desire to discuss the timing of when it’s suitable to start tapering will be scrutinized by the market.” AN INQUIRY AS TO WHEN At that June meeting, many Fed officials pushed back their estimates for rising interest rates from near zero. Thirteen of the 18 officials now expect rates to rise in 2023, with seven of them predicting a rate hike as early as next year. According to economists polled by Reuters, the Fed will announce a plan to taper its asset purchases in August or September, with a reduction in bond purchases starting early next year. find out more Officials at the Federal Reserve have agreed to reduce their exceptional bond purchases as a first step toward raising interest rates. They set a tapering target in December, stating that the economy must make “significant further progress” toward achieving maximum employment and maintaining 2% inflation. The Fed’s preferred inflation measure jumped 3.4 percent in May from a year earlier, but there are still 6.8 million fewer people employed than before the pandemic, and the labor force is 3.4 million lower than before the pandemic. Some policymakers, such as Dallas Fed President Robert Kaplan, have expressed concern that the jobs gap may not be completely filled before interest rates must be raised. Since the pandemic began, more than 2.5 million Americans over the age of 55 have retired. “Those Fed officials arguing for an earlier halt to the Fed’s asset purchases will be emboldened by the greater growth in June payrolls,” said Andrew Hunter, a senior economist at Capital Economics. TREASUREEST VS MBS The minutes could also reveal any preliminary discussions about how the Fed plans to reduce its monthly bond purchases of $80 billion in Treasury securities and $40 billion in mortgage-backed securities. Even though officials claimed it was not on a pre-determined route, the taper went on autopilot in 2014, with similar amounts of Treasuries and MBS being slashed after each policy meeting. However, in recent weeks, a few Fed officials have appeared sympathetic to critics who say that the central bank should not continue to acquire housing-backed assets in a strong real estate market, while cautioning that the Fed prefers to taper in the most predictable manner feasible. However, according to New York Fed president John Williams, switching purchases from MBS to Treasuries would have only a little impact on mortgage rates. “I think the fact that we’re hearing that…reflects the reality that they haven’t had that discussion,” said Julia Coronado, a former Fed economist and president of MacroPolicy Perspectives, an economic consulting firm. She believes that a more detailed briefing from the staff in charge of the bond-buying program at the July meeting will debunk the case for cutting mortgage-backed securities more quickly. “Once the New York Fed’s staff and leadership have clearly laid out all of the concerns, they won’t say such ridiculous things.” Lindsay Dunsmuir contributed reporting, and Dan Burns and Andrea Ricci edited the piece. The Thomson Reuters Trust Principles are our standards./n
Read More
