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Economic Report: Fed tapering could begin in mid-November or mid-December: meeting minutes show

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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 have been made since June 2020.

In public comments since the meeting, Fed officials said the tapering plan could start “soon” and end by the middle of next year.

According to meeting minutes, officials discussed “an illustrative plan” to reduce the purchases by $15 billion per month.

The plan would reduce monthly Treasury purchases by $10 billion and $5 billion in the case of MBS purchases.

“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 plan.

No decision was made.

“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 think the Fed will announce a plan to taper at the end of its Nov. 2-3 meeting.

Some analysts say the tapering could be delayed if Congress has not raised the debt ceiling by then.

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.

Officials were divided, with some officials expecting inflation to remain elevated in 2022 with risks of even higher inflation. Others saw 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. Fed officials were evenly split between those who favored at least one rate increase and those who wanted to hold rates steady.

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were higher in afternoon trading after the minutes were released.

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