Federal Reserve officials discussed a plan to start to slow down emergency support for the economy in either mid-November or mid-December at their Sept. 21-22 policy meeting, according to minutes of the gathering released Wednesday. Fed officials are discussing when to slow down, or taper, the current pace of $120 billion per month in purchases of Treasury and mortgage-backed securities that has been underway since June 2020.
It was clear after the September meeting that tapering would start soon. The minutes provide insight into the details about the specifics on the plan The minutes show officials discussed “an illustrative plan” to reduce the asset purchases by $15 billion per month – specifically cutting purchases of Treasurys by $10 billion and MBS purchases by $5 billion. “Several” Fed officials said they preferred to proceed at a more rapid pace. Others worried about the risks of an adverse market reaction to the tapering. No decision was made but “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,” the minutes said. Economists expect the Fed to announce a plan to taper at the end of its Nov. 2-3 meeting. Even though the pace of job growth has slowed over the past two months, economists said the cumulative gains this year meet Fed standards for raising rates. Some analysts think the tapering could be delayed if Congress has not raised the debt ceiling.Inflation According to the minutes, the Fed staff raised their near term forecast for inflation but stuck to the view that this year’s rise would prove to be “transitory.” While there were upside risks, the staff forecast the Fed’s favorite measure of inflation, the personal consumption expenditure price index, would fall below 2% in 2022 due to a sharp drop in import prices and a partial reversal of supply chain issues. The 18 Fed policymakers were sharply divided, with some officials expecting inflation to remain elevated in 2022 with risks of even higher inflation. Others saw that the largest contributors to elevated inflation were a handful of COVID-related categories where bottlenecks were at play. Longer term, some dovish officials said they were worried about the possibility “of sustained downward pressures” on inflation in the years ahead. These sharply different opinions were reflected in the dot-plot projections of the path of interest rates released last month. Fed officials were evenly split between those who favored at least one rate increase and those who wanted to hold rates steady. “A quick resolution either way is very unlikely. Uncertainty will persist for some time, but the tapering announcement is coming very soon,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note to clients. Stocks
were higher in afternoon trading after the minutes were released.