Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Minutes highlight a Fed split over labor market, bond-buying taper

EconomyAug 18, 2021 05:11PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Federal Reserve Board building is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis

By Howard Schneider and Lindsay (NYSE:LNN) Dunsmuir

WASHINGTON (Reuters) - Federal Reserve officials felt their employment benchmark for decreasing support for the economy "could be reached this year," but appeared to disagree on other key aspects of where monetary policy should turn next in the transition from the pandemic crisis, according to minutes from last month's policy meeting.

The account of the July 27-28 meeting showed Fed officials largely expect that later this year they will reduce the central bank's emergency monthly purchases of $120 billion of Treasury bonds and mortgage-backed securities.

But consensus on other key issues appeared elusive, including the start date and pace of the bond-buying "taper," and whether the bigger risk to the recovery is posed by inflation, ongoing joblessness, or the lurking chance that a resurgent coronavirus may throw things into reverse.

As policymakers weighed recent spikes in prices against the value of being "patient" with monetary policy so more hiring could take place, they also noted "the risks that rising COVID-19 cases associated with the spread of the Delta variant could cause delays in returning to work and school, and so damp the economic recovery."

Stocks closed sharply lower in choppy trading, with the S&P 500 index down more than 1%. U.S. Treasury yields fell, with the benchmark 10-year note hovering around 1.26% after rising to a session high of 1.30% before the release of the minutes. The dollar was largely flat.

Debate at the July policy meeting was complicated further by what amounts to the initial discussions of a longer-term decision - when to raise the Fed's overnight benchmark interest rate from the current near-zero level.

While that is a separate decision from exiting the bond program, with its own set of tests to be met, officials have nonetheless begun debating whether inflation had already cleared one of those standards, and begun worrying that their upcoming decision on the taper of asset purchases could be confused with a more rigorous tightening of monetary policy.

Inflation has soared this year, with one closely watched measure running at a 3.5% annual rate in June, well above the Fed's 2% target.

Yet the economy remains 5.7 million jobs short of where it was before the pandemic. With those core goals seemingly in conflict, the Fed is trying to balance the management of two monetary policy tools - bond purchases and interest rates - without either losing control of inflation or curbing the recovery before the economy regains as many jobs as possible.

"A couple of participants cautioned that it could be challenging for the public to disentangle deliberations about the two tools," the minutes stated.

The jobs hole facing Biden https://graphics.reuters.com/USA-ECONOMY/JOBS/ygdpzzqwypw/

The jobs hole facing Biden and the Fed The jobs hole facing Biden and the Fed https://tmsnrt.rs/3vUldhF

BROAD DIVISIONS

Despite the momentum towards their most pressing policy decision of when to taper the asset purchases, the minutes portrayed a level of discord deeper than what came through in the Fed's July 28 policy statement.

That characterized the U.S. recovery as largely on track despite the spread of the Delta variant, with planning for the eventual end of the central bank's bond-buying program underway.

The minutes, however, showed broad divisions among the Fed's 18 top officials, who include the six members of the Washington-based board of governors and the 12 heads of the regional Fed banks.

"Several participants" said aggressive monetary policy was still needed to fix the damage done to the labor market by the pandemic, and felt ongoing bond purchases helped that process.

"A few" countered that Fed policy had little left to contribute to a process driven by private business and household decisions.

"Several" others said the condition of labor markets prior to the pandemic "may not be the right benchmark" given lasting changes to the economy.

The disagreement has continued outside the meeting room.

Prior to the release of the minutes, St. Louis Fed President James Bullard, who wants the taper to begin soon and end fast, said the central bank could "really get into trouble" if it followed a "go-slow" approach to fighting inflation.

Roughly an hour later, San Francisco Fed President Mary Daly said in a post on Twitter that "overreacting" to inflation "can short-circuit our recovery."

Though Bullard and some other Fed regional bank presidents have been vocal in wanting to start the taper soon, it appeared sentiment at the central bank was drifting in the other direction.

"The only thing that is now clearer ... is that the hawkish crowd that has publicly been calling for an ‘early and fast’ tapering does not represent the majority view," Jefferies (NYSE:JEF) economists Thomas Simons and Aneta Markowska said in a note after the release of the minutes.

The minutes also magnified the importance of the next few monthly jobs reports, with solid gains needed to meet the Fed's expectations and show the virus has not begun to again slow the economy.

In December, the central bank said it would not reduce its asset purchases until there had been "substantial further progress" in the jobs recovery.

Substantial progress for the Fed https://graphics.reuters.com/USA-ECONOMY/FEDPROGRESS/qmyvmzzedpr/

"Substantial further progress" for the Fed? https://tmsnrt.rs/3qkjC3B

At that point, the economy was around 10 million jobs shy of where it was before the pandemic. Employers have added 4.3 million jobs since then, including a total of nearly 1.9 million jobs in June and July, a pace some analysts expect to continue into the fall.

Minutes highlight a Fed split over labor market, bond-buying taper
 

Related Articles

Marketmind: Extreme fear? Seriously?
Marketmind: Extreme fear? Seriously? By Reuters - May 18, 2022

A look at the day ahead in markets from Julien Ponthus. One might think that with CNN's popular gauge of investor sentiment stuck on 'extreme fear', it would take some seriously...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (12)
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Aug 18, 2021 6:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Tapering is the best way to keep rates lower for now
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Aug 18, 2021 6:30PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Now the Fed will set target ranges for stock market corrections. Biden warns Powell, to keep the Fed chairman job, monitor and control stock market corrections. 2022 republican victory based on tax cut promise for corporate and individual
Johnnie Walker
Johnnie Walker Aug 18, 2021 6:15PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
They wont tapper. Period.
Connecticut Yankee
A_Jaundiced_Eye Aug 18, 2021 2:34PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The Liberals are holding this carrot out in front of Powell: "Hey, Jerry, if you want to re-nominated, keep rates at 0%." And like a donkey, Powell complies.  Wait 'til the time comes and they give him the heave-ho.  He'll look like the fool he is !
William Bailey
William Bailey Aug 18, 2021 1:11PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Hey dummies, tapering has been gappening for the kast three months, reverse repo, the Fed is faking support !!!
Wankel YU
Wankel YU Aug 18, 2021 12:52PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
100 McDonald's meal is coming
Matt Brackley
Matt Brackley Aug 18, 2021 11:56AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
probably economy recovery in effect, tapering late 22....dollar crash...equities moon yields flat
Michael Angelo
Michael Angelo Aug 18, 2021 11:43AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Like people's opinion. Everybody looks relax like knowing the future because it's been repeating for ever. Perfect scenario for a changing event. Looks safe but I don't bet for it.
Millennial Metals
Millennial Metals Aug 18, 2021 11:17AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
They will never taper
Franco Dominguez
Franco Dominguez Aug 18, 2021 10:38AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
elder powell move rate only 0.25bps nothing will happen and you cld move better next time
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email