‘Some’ on Fed thought faster pace of tapering bond buys was warranted, meeting minutes show

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Federal Reserve officials discussed the possibility that they should be prepared to adjust monetary policy if inflation pressures continue to remain above Fed targets, according to minutes of the November 2-3 meeting published Wednesday.

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Minutes showed that “some” Fed officials had agreed to a faster pace of bond purchases than the $15 billion per month schedule their allies had agreed upon.

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In addition, “various” Fed officials noted that the Fed should be prepared to adjust the pace of tapering and raise short-term interest rates “if inflation continues to exceed levels consistent with the FOMC’s objectives.”

At the meeting, the Fed decided to reduce monthly asset purchases of Treasury and mortgage securities by $15 billion per month.

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Fed officials were divided between hawks who want the Fed to be faster and pigeons who urged patience.

Since the beginning of November, there are indications that the pigeons are moving in the direction of the eagle.

Earlier on Wednesday, San Francisco Fed Chair Mary Daly, a well-known dove on the Fed, told Yahoo Finance that she would support a bullish tapering if recently observed economic trends continue.

Krisha Guha, a former Fed employee and now vice-president of Evercore ISI, said the Daily’s comments show him that a sharper move is likely in December. The pigeons will keep their powder dry in debating when to raise short-term interest rates.

The Fed lowered its key short-term rate to near zero in 2020 at the start of the pandemic. The phasing out of the Fed’s asset purchases would give the central bank the flexibility to raise rates next year.

According to the minutes, Fed staff raised their “near-term” outlook for inflation, but still expects the rate of increase in prices to slow to 2% in 2022.

Inflation is running at a 5% annual rate, well above the Fed’s 2% target.

Fed policy is far from neutral – which the Fed now forecasts to be a short-term interest rate of 2.5%.

Yield on 10 Year Treasury Note TMUBMUSD10Y,
1.647%
The Fed has risen above 1.65% in recent days on comments from officials about the fast pace of tightening.

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-0.22%

spx,
-0.04%
Were down on concerns about higher borrowing costs.

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