Most Federal Reserve officials at the central bank’s July monetary policy meeting believe it will be appropriate to begin tapering asset purchases this year, according to the minutes of the meeting released on Wednesday.
The expectation of tapering the Fed’s asset purchases this year comes as most participants saw the “substantial further progress” criterion as satisfied with respect to the price stability goal and as close to being satisfied with respect to maximum employment.
However, the minutes of the July 27 to 28 showed there was still some disagreement over the timing of tapering the asset purchases.
While some believe tapering could begin in the “coming months,” others felt a reduction in the pace of asset purchases would be more likely to become appropriate next year.
Participants favoring waiting until next year saw prevailing conditions in the labor market as not being close to meeting the “substantial further progress” standard or because of uncertainty about the degree of progress toward the price stability goal.
The Fed has repeatedly pledged to maintain its asset purchases at current levels until “substantial further progress” has been made toward both its maximum employment and price stability goals.
The minutes showed participants also expressed a range of views on the appropriate pace of tapering asset purchases once economic conditions satisfied the “substantial further progress” criterion.
Many participants saw potential benefits in a pace of tapering that would end the Fed’s asset purchase program before economic conditions met the standard to begin raising interest rates.
The Fed said several participants noted that an earlier start to tapering could be accompanied by more gradual reductions in the purchase pace, potentially mitigating the risk of an excessive tightening in financial conditions.
Reflecting the recent surge in new cases of the delta variant of the coronavirus, several participants noted their views on the appropriate path of asset purchases could change if the economic effects of the new strains of the virus turn out to be notably worse than anticipated.
The minutes of the July meeting also said the projection for U.S. economic activity was little changed, on balance, from the June forecast.
The Fed noted the near-term outlook for inflation was upwardly revised in response to incoming data, but staff continued to expect the rise in inflation would prove to be transitory.
With the Fed pledging to provide advance notice before making changes to its asset purchase program, the statement following the next monetary policy meeting in September is likely to be closely watched.