It was clear to the officials that they wanted to slow down bond purchases first, while interest rates remain at rock bottom until the annual inflation rate has risen sustained above 2 percent and the labor market has reached full employment again.
Markets are extremely aligned with the Fed’s plans for bond purchases, which tend to keep asset prices high by allowing money to flow through the financial system. Central bankers are therefore very cautious when discussing their plans to curtail these purchases. They want a lot of forewarning before changing policies to avoid spinning stocks or bonds.
Shares fell in the moments after the 2pm release and fell as government bond yields rose. The S&P 500 was able to regain some of its losses at the end of the day, falling 0.3 percent. The yield on 10-year Treasury bills rose to 1.68 percent.
Even before the latest labor market report showed a slowdown in employment growth, Fed officials thought it would take some time to reach full employment, the minutes showed.
“Participants judged the economy to be far from meeting the Committee’s broad and comprehensive objective for maximum employment,” the minutes read. Many officials also noted that company executives reported hiring problems that have since been blamed for the slowdown in employment growth in April.
Regarding inflation, Fed officials have repeatedly stated that they expect prices to continue falling temporarily. It makes sense that data is very volatile, they said: the economy has never opened again after a pandemic. This message was repeated throughout the April Protocol and has been repeated by officials since then.
“We expect inflationary pressures to likely rise over the course of next year – certainly in the coming months,” said Randal K. Quarles, Fed vice chairman for oversight, during a statement in Congress on Wednesday. “Our best analysis is that these pressures will be temporary, even if significant.”