Federal Reserve officials said at their April meeting that a strong recovery in economic activity would warrant discussions about tightening monetary policy, according to minutes of the meeting released on Wednesday.
“A number of participants suggested that it might be appropriate in the upcoming meetings to discuss a plan to adjust the pace of asset purchases as the economy continues to make rapid progress towards the committee’s objectives,” it said Summary of the meeting.
Markets have been looking closely for clues as to when the central bank may cut back on its bond purchases, which are currently at least $ 120 billion a month. The Fed’s balance sheet is just under $ 7.9 trillion, almost double what it was before the Covid-19 pandemic.
Fed officials firmly believed they will not change their policies until their economic goals, particularly those related to employment and inflation, are met. The discussion revealed in the Minutes is the first time central bankers have suggested that a reduction in purchases could be made in advance, even though there was no timetable.
Stocks, which briefly contributed to losses after release, and government bond yields stayed mostly higher during the session.
Chairman Jerome Powell said after the meeting that the recovery was “uneven and nowhere near complete” and the economy was still not showing the standard of “substantial further progress” that the committee set before changing policy.
Since then, however, the consumer price index has seen inflation rise 4.2% year over year. GDP is expected to grow close to 10% in the second quarter and manufacturing and spending indicators are showing strong upward momentum.
The only exception was a surprisingly slow hiring pace in April, when the number of non-farm workers rose by only 266,000, contrary to expectations of a 1 million profit.
At the April meeting, the Federal Open Market Committee voted in favor of keeping short-term benchmark rates near zero and keeping bond buying levels intact.
Along with that decision, the Fed improved its view of the economy, saying that growth had “strengthened” and inflation had risen.
The April meeting took place before the inflation and employment figures for the month were released.
Fed officials at the meeting expressed broad confidence about inflation and assumed that near-term price pressures would ease over the course of the year.
Those at the April 27-28 meeting said they expected rising demand with an economic reopening coupled with supply chain issues to push prices above the Fed’s 2% inflation target.
“After the temporary effects of these factors wore off, participants generally expected measured inflation to weaken,” the minutes read.
The minutes say that “various participants” anticipated that it “will likely take some time for the economy to make significant further progress in comparison to the conditions in which it was first made available in December 2020 by the committee Direction of the goals achieved by the Committee for Maximum Employment and Price Stability has given guidance for asset purchases. “
The Fed has set itself an ambitious and somewhat ambiguous target as to when it will change the ultra-loose policy introduced in the early days of the pandemic.
Central bankers are aiming for full and inclusive employment, saying they will let inflation a little above their 2% target in a new political regime that targets an average around that level, rather than using it as a maximum benchmark before tightening.
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