As we discussed on Tuesday, The Fed says that asset purchases could begin to taper in 2021, according to the minutes from the Federal Reserve’s meeting in July… (Federal Reserve)
TAPERING:
- When? “Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year”
- Why? “The Committee’s ‘substantial further progress’ criterion as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximum employment goal.”
- NOTE: “Participants agreed that the Committee would provide advance notice before making changes to its balance sheet policy.”
INTEREST RATES:
- No changes for now. “All members agreed to keep the target range for the federal funds rate at 0 to ¼ percent…”
- When could that change? Not until “labor market conditions had reached levels consistent with the Committee’s assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time.”
INFLATION:
- More than expected. “Participants remarked that inflation had increased generally more than expected this year and attributed this increase to supply constraints in product and labor markets and a surge in consumer demand as the economy reopened.”
- Do they still believe it is transitory? Yes. In fact, participants pointed out “that the largest contributors to recent increases in measures of inflation were a handful of sectors most affected by temporary supply bottlenecks or sectors in which price levels were rebounding from depressed levels as the economy continued to reopen…participants generally expected inflation pressures to ease as the effect of these transitory factors dissipated…”
- When will prices subside? Good question. They don’t really know. In fact, “several participants remarked that larger-than-anticipated supply chain disruptions and increases in input costs could sustain upward pressure on prices into 2022.”
WHAT ABOUT HOUSING? I’m glad you asked. “Participants generally expected housing demand to remain strong but noted that construction had been restrained by shortages of materials and other inputs and that home sales had been held back by limited supplies of available homes.”