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Federal Reserve officials held a vigorous debate last month on whether the U.S. economic rebound would be strong enough for the central bank to start ticking. stimulus of the pandemic era faster than expected.
The minutes of the June meeting of the Federal Open Market Committee meeting published on Wednesday showed two prevailing disputed fields over whether the American economy it was poised for a faster reduction in its $ 120 billion asset purchase program.
This debate is expected to take center stage in the coming months.
Fed officials hinted that the “reduction” in purchases could begin earlier than expected, given the stronger economic outlook, driven by the rapid introduction of vaccination in the United States, but conditions were not yet complete. mature.
“It was generally considered that the level of‘ substantial progress ’of the committee had not yet been met, although participants expected progress to continue,” the minutes said.
“Several participants mentioned that they expected the conditions to begin slowing the pace of asset purchases to be met a little earlier than they had anticipated in previous meetings in light of the incoming data.”
Some officials, however, urged caution when reading the current data too much, given the possible peculiarities associated with economic reopening. The information in the coming months would allow for a “better assessment of labor market trajectory and inflation,” they said.
Overall, the committee agreed that “as a matter of prudent planning, it was important to be well positioned to slow down the pace of asset purchases, where appropriate, in response to unexpected economic developments.”
The Fed decided to keep his main interest rate pending close to zero, but officials predict rates will rise in 2023, ahead of schedule in March. These projections, in a document commonly known as “Dot plot”, were discussed during the meeting.
According to the records, “a few” officials said they expected the economy to be ready for interest rate hikes “a little earlier” than previously thought, but others backed down.
“Several participants stood out. . . that the uncertainty surrounding the economic outlook was high, “the record said, and that” it involved significant uncertainty about the proper path of the federal funds rate. “
Some Powered Officials also warned that given the market’s attention to interest rate projections, “it would be important to note that the committee’s reaction function or commitment to its monetary policy framework had not changed.”
The Fed has said it would only raise interest rates once full employment is reached and when inflation has reached 2% and is on track to surpass it moderately for some time.
Some investors interpreted the new interest rate projections as an indication that the Fed could prove more sensitive to inflationary pressures than previously expected, which led to a sharp rise in U.S. government bond prices since the meeting. The yield on the benchmark ten-year note had fallen to 1.3% on Wednesday, the lowest level in four months.
The 30-year ultra-long bonds remained stable at around 1.93% after the publication of the report, far from the 2.3% level seen in early June.
Fed officials also debated last month about how the central bank would go about reducing its asset purchases, when they finally saw fit. A growing choir of officials has publicly expressed its preference end purchases of agency mortgage-backed securities before buying the Treasury bond, an underlined view in minutes.
“Several participants saw advantages in slowing down the pace of these purchases faster or earlier than Treasury purchases in light of valuation pressures housing markets“, Deia.
Not all officials are subscribed to this view.
“Several other participants, however, commented that it was preferable to reduce the pace of Treasury and MBS purchases because this approach would be well aligned with previous committee communications or because Treasury and MBS securities purchases provide accommodation through the its influence on broader financial resources. conditions, “the minutes said.
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