Some Fed members open to discussing stimulus reduction

(Bloomberg) – Federal Reserve officials were cautiously optimistic about the US economic recovery at the central bank’s April meeting, with some officials noting they would be open to discussing reducing the bank’s massive bond purchases. central “sometime”.

“Several participants suggested that if the economy continued to move rapidly toward the Committee’s goals, it might be appropriate at some point in the next few meetings to begin discussing a plan to adjust the pace of asset purchases,” according to the minutes of the Federal Investment Committee. Open Market (FOMC) of April 27 and 28, published on Wednesday.

“Several participants noted that it would probably take some time for the economy to make substantial progress toward the Committee’s maximum employment and price stability goals,” according to the minutes.

Officials kept interest rates close to zero at the meeting and pledged to continue buying $ 80 billion in Treasuries and $ 40 billion in mortgage-backed securities each month until “additional substantial progress” has been made on their employment and inflation targets.

US Treasuries fell on high futures volumes after the minutes were released, as investors digested the news that there was a group of officials open to talking about declining bond purchases. US stocks fell.

The US labor market posted sharp gains in March, the most recent month for which Fed officials had data at the April meeting. Policymakers have since signaled that they would need to see continued strength to indicate that the economy is on track to meet the Fed’s test to reduce bond purchases.

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The recovery outlook was clouded by the disappointing April jobs report, released after the Fed meeting. Policy makers will have that report, plus May, at their next meeting in June.

Fears of higher inflation have made some investors uneasy in recent weeks, amid rising commodity prices, while critics of the Fed argue that its ultra-soft policies, combined with massive US fiscal stimulus, are running high. the risk of overheating the economy.

Inflation outlook

In their comments on inflation, Fed officials stated that a surge in demand coupled with some supply bottlenecks will likely drive inflation measures above 2% in the near term. The minutes note that “several” participants said that any shortage of supply “may not be resolved quickly and, if so, these factors could push up prices beyond this year.” Still, “many” noted that long-term inflation expectations remained anchored close to the committee’s target.

“Despite expected short-term fluctuations in measured inflation, many participants commented that various measures of long-term inflation expectations remained well anchored at levels broadly consistent with the achievement of the Committee’s long-term objectives,” the minutes indicate.

Goods prices skyrocketed in April, and the consumer price index posted its biggest month-on-month increase since 2009. Supply chain bottlenecks and expanding economic activity as vaccination rates rise are contributing to the price hikes, which Fed officials have said will be transitory and temporary.

Cleveland Fed Chair Loretta Mester noted earlier this month that inflation trend measures, including her bank’s average CPI gauge, at 2.1% in April, are still under control.

Fed officials did not update their economic projections at the April meeting. They will do so at the June 15-16 meeting.

Original Note: Some Fed Officials Favored Taper Talk at ‘Upcoming Meetings’ (2)

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