Federal Reserve officials discussed the idea of beginning to dial back their extraordinary support for the U.S. economy later this year at their meeting last month, though they stopped short of a firm decision on a timetable.
The minutes of the Fed’s July 27-28 meeting indicated that the economic recovery from the pandemic recession was moving closer to achieving the central bank’s goals on inflation and employment. As a result, the Fed is edging toward an announcement that it will begin paring the pace of its Treasury and mortgage bond buying, which now amounts to $120 billion a month. These purchases have been intended to lower longer-term interest rates and encourage borrowing and spending.
“No decisions regarding future adjustments to asset purchases were made at this meeting,” the minutes said. Still, most of the Fed officials at last month’s meeting “noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year.”
At the same time, while economic progress is being made, the minutes noted that Fed officials expressed concern about the threat posed by rising COVID-19 cases stemming from the highly contagious Delta variant.
Participants noted “that the spread of the Delta variant may temporarily delay the full reopening of the economy and restrain hiring and labor supply,” the minutes said.
Based on the recent public comments of some Fed officials who favor a pullback soon in bond purchases, many economists have speculated that the central bank will announce a plan in September to begin tapering the bond buying later this year and wind it down over a period of months.
Some of the Fed’s policymakers have argued that the bond purchases are now serving mainly to drive up the prices of interest-rate sensitive goods such as homes and cars. Home prices have been rising at the fastest pace in nearly 20 years. Reducing the Fed’s bond purchases would mean less downward pressure on long-term rates and, at least in theory, higher rates on some business and consumer loans.
With inflation surging in recent months, the Fed has come under criticism from some members of Congress for continuing the bond purchases while also keeping its benchmark short-term interest rate pinned near zero.
Besides Bullard, Fed officials who have suggested that the central bank should begin tapering the bond purchases this fall include Eric Rosengren, president of the Federal Reserve Bank of Boston, Robert Kaplan of the Dallas Fed, Raphael Bostic of the Atlanta Fed and Christopher Waller, who serves on the Fed’s influential board in Washington.
Still, in their most recent remarks, Chair Jerome Powell and some other Fed officials have expressed a preference for a slower timetable to allow the job market to show further improvement. One such official, Lael Brainard, a Fed board member, has said she still wants to see jobs and inflation data for the month of September to gauge how much progress the economy has made. That data won’t be available until October.