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Fed Sees Progress on Taper Threshold, but Timing Uncertain: Fed Minutes

EconomyJul 07, 2021 02:38PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com – Federal Reserve policymakers generally agreed that the threshold to begin scaling back its monthly bond purchases had not yet been met, though some members believe the conditions to taper could arrive sooner rather than later amid an improving economic backdrop, according to the minutes of the Federal Reserve's June meeting. 

"The Committee's standard of 'substantial further progress' was generally seen as not having yet been met, though participants expected progress to continue," the minutes showed. There were, however, various participants that expected the conditions for the taper threshold to be "met somewhat earlier than they had anticipated at previous meetings in light of incoming data."

At the conclusion of its previous meeting on June. 16, the Federal Open Market Committee kept its benchmark rate in a range of  0% to 0.25% and the pace of bond purchases at $120 billion monthly.

While the unchanged monetary policy was widely expected, the central bank brought forward its projections for when the liftoff in rates will get underway. It hinted at two rate hikes in 2023, and signaled higher odds for a first hike coming as early as 2022.

The somewhat hawkish tilt caught many by surprise, and brightened the spotlight on tapering. Fed chairman Jerome Powell confirmed that the topic of tapering had been broached at the June meeting, dubbing it the "talking-about-talking-about meeting."

The central bank, however, appears in no rush to begin tapering as some participants preferred that the committee wait for further information in the coming months to "make a better assessment of the path of the labor market and inflation," according to the minutes.   

Under its current asset purchase program, the Fed is buying $40 billion in mortgage backed securities, or housing debt, and $80 billion a month in Treasuries.  

Differences over whether to lean more heavily toward tapering MBS purchases or Treasuries, or both simultaneously, was also a hot topic of debate. Those in favor of trimming MBS purchases more quickly or earlier Treasuries, pointed to the need to cool the housing market amid concerns over valuations.  While several other participants preferred to reduce the pace of Treasury and MBS purchases commensurately because this approach would be "well aligned with the committee's previous communications or because purchases of Treasury securities and MBS both provide accommodation through their influence on broader financial conditions."

The recovery in the labor market appears to be the heart of the Fed's taper threshold, with Powell waxing lyrically about the prospect of further job gains to come later this year, forecasting that the current labor supply issues are likely to wane.

"I think it's clear, and I am confident, that we are on a path to a very strong labor market," Powell said in the post-Fed meeting press conference on June 16. "I would expect that we would see strong job creation building up over the summer and going into the fall."

The pace of inflation, meanwhile, raised a few eyebrows at the committee, though members continue to believe the factors driving inflation are transitory. 

"[P]articipants remarked that the actual rise in inflation was larger than anticipated, with the 12-month change in the PCE price index reaching 3.6 percent in April. Participants attributed the upside surprise to more widespread supply constraints in product and labor markets than they had anticipated and to a larger-than-expected surge in consumer demand as the economy reopened," the minutes showed.  

While the minutes didn't offer a clearer picture on the timing of tapering, some on Wall Street believe the monetary policy pendulum has swung toward the Fed tightening sooner rather than later.

"We expect it [Fed] to provide forward guidance in September and announce tapering at the end of 1Q22, one quarter later than consensus," Morgan Stanley (NYSE:MS) said. "There are inherent uncertainty bands around this view and given the speed of the labor market recovery I would place the risk of a sooner than later start to tapering," Morgan Stanley Economist Ellen Zentner said in a note.

Fed Sees Progress on Taper Threshold, but Timing Uncertain: Fed Minutes
 

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Comments (20)
MK MK
MK MK Jul 07, 2021 6:25PM ET
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Silly slaves, sell USD, do not worry about rate hike. They cannot stop printing, so how can they raise rate???
Alaa Laanaiti
Alaa Laanaiti Jul 07, 2021 5:03PM ET
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The fed is kind of playing the markets in purpos to delay the crush. But the worst is inevitable any way, it's a matter of time only and usd is going to loose momentum anyway. So be prepared
Alaa Laanaiti
Alaa Laanaiti Jul 07, 2021 5:00PM ET
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Uncertainty remains untill further notice.
Steve Pettegrew
Steve Pettegrew Jul 07, 2021 4:47PM ET
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wishy washy fed
Rosh Jardine
RoshJardine Jul 07, 2021 3:53PM ET
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The FED is truly seeing digital currency as inflation hedger...closing my long
Mark sw
Mark sw Jul 07, 2021 3:53PM ET
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italy 40 and dollar
Dominic Tagle
Dominic Tagle Jul 07, 2021 3:34PM ET
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Let us be happy.. but not yet..
Michael Dell
Michael Dell Jul 07, 2021 3:25PM ET
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1% interest rate on over 4% inflation isnt hawkish
James Johannsen
James Johannsen Jul 07, 2021 3:25PM ET
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more like %15
William Bailey
William Bailey Jul 07, 2021 3:11PM ET
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Sustantial gobbydegoup transkates into …. We started tapering months ago , but we need to pretend we are still giving out free money to the markets to keep the suckers in
OMG ItsIronMike
OMG ItsIronMike Jul 07, 2021 3:09PM ET
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Houses were 25k 50 years ago and people were making same money as they making now HILARIOUS
frank zapper
frank zapper Jul 07, 2021 3:01PM ET
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houses in ny that were 25k in 1980's are 1.2 millions today. and there nothing special.
William Bailey
William Bailey Jul 07, 2021 3:01PM ET
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Wait til the ***hits the fan within the next 120 days! Debt cieling will not go up much if at all , that means the Fed cant give out much more free credit and actually they have already taken back 1 trillion in the background
Jon Bal
Jon Bal Jul 07, 2021 2:36PM ET
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really? even crack houses are going for $300k in my city
Mark sw
Mark sw Jul 07, 2021 2:36PM ET
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u will taper your puppets indicies will crash and never rise
Jeff Paper
Jeff Paper Jul 07, 2021 2:32PM ET
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Here comes hyperinflation.
Raweewat Sriprajan
Raweewat Sriprajan Jul 07, 2021 2:32PM ET
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Yep soon
Hengky Siat
Hengky Siat Jul 07, 2021 2:28PM ET
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statement was unclear...
Tyler Phillis
Tyler Phillis Jul 07, 2021 2:28PM ET
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…did you expect clarity? Lol…
Rich Bah
Rich Bah Jul 07, 2021 2:23PM ET
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Blurry comments ‘not yet met’
Stan Smith
Stan Smith Jul 07, 2021 2:20PM ET
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They will never taper and they will never raise rates...there said it for you FED. oh and inflation will rocket so stop deceiving investors who will lose their shirts in the coming crash due to your 'advice' which only serves to provide Main St bag holders for Wall St
Thuan Bui
Thuan Bui Jul 07, 2021 2:20PM ET
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No investors lose money man, they are loving this game
Tyler Phillis
Tyler Phillis Jul 07, 2021 2:20PM ET
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Assets gain in inflationary enviornments. Commodities go up in price, along with finished goods and wages, although wages go up in the final stages. I think a soveriegn debt default is more likely as the final act. Inflation is what will happen until then.
우석 양
우석 양 Jul 07, 2021 2:20PM ET
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So in a nut shell "NOT YET"
olamilekan Odunayo
olamilekan Odunayo Jul 07, 2021 2:18PM ET
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" The main takeaway so far is that there's no big urgency here to taper or hike rates. That's helped to boost stocks and weaken the US dollar. " = Okayy!!! Sir yes Sir , Anddddd.....Gold(XAU) What do you wanna do next ?
Jokers R Us
Jokers R Us Jul 07, 2021 2:18PM ET
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15k
CT SomyedHengSuay
CT SomyedHengSuay Jul 07, 2021 2:16PM ET
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" The main takeaway so far is that there's no big urgency here to taper or hike rates. That's helped to boost stocks and weaken the US dollar. " = Okayy!!! Sir yes Sir , Anddddd.....Gold(XAU) What do you wanna do next ?
Serdar ooz
Serdar ooz Jul 07, 2021 2:15PM ET
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Everything but faang stocks stuck below sma line. Where is the rebound?
 
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