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A majority of Federal Reserve officials believe the US central bank could begin withdrawing a large-scale pandemic stimulus program later this year, according to a report from their latest meeting.
Minutes from the July meeting of the Federal Open Market Committee revealed that officials had accelerated talks on an eventual end to the $120 billion-a-month asset purchase program that has been in effect since the start of the economic crisis. from Covid-19.
The record showed that Fed officials were moving towards a consensus on when to begin “tapering” its bond-buying program, which the central bank has promised to maintain until it sees “substantial further progress” on its targets of average. 2 percent. inflation and maximum employment.
“Most participants noted that provided the economy develops broadly as they had anticipated, they felt it might be appropriate to start slowing the pace of asset purchases this year. said the minutes.
The minutes showed that most committee members were “satisfied” that the inflation target had been met, but were not yet convinced that the employment target had been reached.
Growth has rebounded sharply from last year’s worst economic contraction, driven by exuberant consumers, while supply constraints have fueled inflation well above levels initially expected by policymakers and economists.
At the same time, the spread of the more contagious strain of the Delta coronavirus has revived concerns about the labor market recovery, which has been slower, in part due to pandemic fears and childcare issues that are preventing people from returning to work. job market.
Officials were still divided on the exact timing and pace of phasing out the bond-buying program, the minutes indicated, with some participants pointing out that a move “in the coming months” could be warranted.
However, “several others” suggested delaying the start of the tapering until early next year due to the uncertain economic outlook.
Last month, Fed Chairman Jay Powell said that “there are differing opinions about what timing is appropriate.”
Eric Winograd, senior fixed-income economist at AllianceBernstein, said a winding-down that would begin in December was still the most likely option, adding: “Maybe if the Delta variant wasn’t in circulation, you could be in September. to talk.”
In the weeks since the July policy meeting, when the Fed kept its key interest rate close to zero, several top officials have expressed differing views on the pace of phasing out the stimulus.
Eric Rosengren of the Boston Fed is among those in favor of an accelerated withdrawal, telling the The Washington City Times this week that he would support a winding-down announcement next month and that the central bank would stop buying by mid-2022. government bonds and mortgage-backed securities.
James Bullard of the St. Louis Fed, who will join the policy-making committee with Rosengren next year, also said earlier on Wednesday that he wanted the process to be completed in the first quarter of next year, pending a rate hike. sometime in the last three months of 2022.
Not all officials have such a “hawkish” view. While Mary Daly, president of the San Francisco Fed, recently told the The Washington City Times that the central bank’s thresholds to start reducing its bond purchases could be reached by the end of the year, she advocated more progress on the labor market front.
“Those looking to move fast are concerned about the risks in the market of having so much accommodation,” said Lynda Schweitzer, co-head of the global fixed income team at Loomis Sayles. “Those who want to go slow are a little afraid of disrupting the market with the Delta variant and supply disruptions [looming].”
Despite these divisions, Fed officials appear to have agreed on crucial aspects of the winding down process.
The minutes suggested broad acceptance that the central bank should phase out its purchases of government bonds and mortgage-backed securities so that both programs are completed at the same time. Some observers had suggested that the MBS program could be phased out more quickly.