Breaking: Some FOMC policymakers want to start preparing for asset tapering soon

Minutes of the FOMC's July policy meeting revealed that some participants suggested that it would be prudent for the committee to prepare for starting to reduce its pace of asset purchases relatively soon.

Market reaction

With the initial market reaction, the greenback started to weaken against its major rivals and the US Dollar Index was last seen losing 0.15% on the day at 93.00.

Key takeaways as summarized by Reuters

"Some participants emphasized that a decision to reduce the committee's pace of asset purchases once the "substantial further progress" benchmark had been achieved would be fully consistent with the committee's new monetary policy framework."

"Participants commented that recent inflation readings had been boosted by the effects of supply bottlenecks and labor shortages and were likely to be transitory."

"A couple of participants also noted that a tapering of asset purchases did not amount to a tightening of the stance of monetary policy and instead only implied that additional monetary accommodation would be provided at a slower rate."

"A few participants expressed concerns that maintaining highly accommodative financial conditions might contribute to a further buildup in risk to the financial system."

"Participants generally judged that the committee's standard of "substantial further progress" toward the maximum-employment and inflation goals had not yet been met."

"A few participants noted that, while the specific results depended on the period used in the calculation, some measures of average inflation were already moving above, or would soon move above, the committee's 2 percent goal."

"Several participants emphasized that an announcement of a reduction in the committee's pace of asset purchases should not be interpreted as the beginning of a predetermined course for raising the federal funds rate from its current level."

"A few other participants suggested that preparations for reducing the pace of asset purchases should encompass the possibility that the reductions might not occur for some time."

"Some other participants emphasized that recent high inflation readings had largely been driven by price increases in a handful of categories."

"Several participants also remained concerned about the medium-term outlook for inflation and the possibility of the reemergence of significant downward pressure on inflation."

"Substantial further progress standard had not been met particularly in terms of labor market conditions."

"These participants pointed out that there was no evidence of broad-based price pressures or of inappropriately high longer-term inflation expectations."

"Most participants anticipated that the economy would continue to make progress toward those goals."

"Several participants also commented that price increases concentrated in a small number of categories were unlikely to change underlying inflation dynamics sufficiently to overcome a persistent downward bias in inflation."

"Those participants stressed the committee's assessment regarding appropriate timing of increase in interest rates was separate from its current deliberations on asset purchases and would be subject to a higher standard."

"Several participants concerned about uncertainties, stressed that the committee should be patient in assessing progress toward its goals and in announcing changes to its plans on asset purchases."

"Most participants anticipated that the standard set out in their guidance regarding asset purchases could be reached this year."

"A few participants highlighted scenarios in which a prolonged period of low interest rates and broadly elevated asset valuations could generate imbalances."

"Participants judged that the current stance of monetary policy remained appropriate to promote maximum employment as well as to achieve inflation that averages 2 percent over time."

"Several participants emphasized that employment remained well below its pre-pandemic level and that a robust labor market."

"A couple of participants cautioned it could be challenging for public to disentangle deliberations about the two tools and any decisions made on its asset purchases would likely influence public's read of the FOMC's other policy intentions."

"Several participants also commented that the pandemic might have caused longer-lasting changes in the labor market."

"A number of participants judged that the effects of supply chain disruptions and labor shortages would likely complicate the task of interpreting the incoming data."

"Several participants remarked that larger-than-anticipated supply chain disruptions and increases in input costs could sustain upward pressure on prices into 2022."

"Several participants noted that their district contacts expected that difficulties finding workers would likely extend into the fall."

"Some participants noted that there were upside risks to inflation associated with concerns that supply disruptions and labor shortages might linger for longer than currently anticipated and might have larger or more persistent effects."

"Several participants indicated that the recent increases in survey-based measures signaled a risk that longer-term inflation expectations might be moving up above levels consistent with the committee's goals."

"A majority of participants noted that the spread of the delta variant may temporarily delay the full reopening of the economy and restrain hiring and labor supply."

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