The FOMC July Policy Meeting Minutes revealed that some participants suggested that it would be prudent for the committee to prepare to begin reducing its asset purchase rate relatively soon.
Market reaction
With the initial market reaction, the dollar began to weaken against its main rivals and the US dollar index was last seen losing 0.15% on the day at 93.00.
Featured statements summarized by Reuters
“Some participants emphasized that a decision to reduce the committee’s asset purchase pace once the ‘additional substantial progress’ benchmark has been achieved would be fully consistent with the committee’s new monetary policy framework.”
“FOMC members commented that recent inflation readings had been driven by the effects of supply bottlenecks and labor shortages and were likely to be transitory.”
“A couple of FOMC members also pointed out that a reduction in asset purchases did not amount to a tightening of monetary policy stance and instead only implied that additional monetary accommodation would be provided at a slower pace.”
“Some participants expressed concern that maintaining highly accommodative financial conditions could contribute to a greater accumulation of risk for the financial system.”
“FOMC members generally judged that the committee’s standard of ‘additional substantial progress’ toward maximum employment and inflation targets had not yet been met.”
“Some 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 exceed, the committee’s 2% goal.”
“Several members emphasized that an announcement of a reduction in the committee’s asset purchase rate should not be construed as beginning a predetermined course to raise the federal funds rate from its current level.”
“Some other members suggested that preparations to reduce the pace of asset purchases should include the possibility that reductions may not occur for some time.”
“Some other participants emphasized that recent high inflation readings had been largely driven by price increases in a handful of categories.”
“Several members were also concerned about the medium-term inflation outlook and the possibility of a resurgence of significant downward pressure on inflation.”
“A further substantial progress standard had not been met, particularly in terms of labor market conditions.”
“These participants noted that there was no evidence of broad-based price pressures or inappropriately high long-term inflation expectations.”
“Most members anticipated that the economy would continue to move toward those goals.”
“Several participants also commented that price increases concentrated in a small number of categories are unlikely to change core inflation dynamics enough to overcome a persistent downward bias in inflation.”
“Some members emphasized that the committee’s assessment of the appropriate timing of the interest rate hike was separate from its current deliberations on asset purchases and would be subject to a higher standard.”
“Several participants were concerned about the uncertainties, emphasizing that the committee must be patient in evaluating progress toward its goals and announcing changes to its asset purchase plans.”
“Most members anticipated that the standard set in their guidance regarding asset purchases could be met this year.”
“Some members highlighted scenarios in which a prolonged period of low interest rates and widely elevated asset valuations could lead to imbalances.”
“Participants considered that the current stance of monetary policy was still appropriate to promote maximum employment, as well as to achieve inflation averaging 2% over time.”
“Several participants emphasized that employment remained well below its pre-pandemic level and a robust labor market.”
“A couple of participants cautioned that it could be a challenge for the public to unravel the deliberations on the two tools and that any decision made about their asset purchases would likely influence the public’s reading of the FOMC’s other policy intentions.”
“Several participants also commented that the pandemic could have caused more lasting changes in the labor market.”
“Several members felt that the effects of supply chain disruptions and labor shortages would likely complicate the task of interpreting the incoming data.”
“Several participants commented that larger-than-anticipated supply chain disruptions and increases in input costs could sustain upward pressure on prices in 2022.”
“Several members noted that their contacts in the district expected that the difficulties in finding workers would likely extend into the fall.”
“Some members noted that there were upside risks to inflation associated with concerns that supply disruptions and labor shortages could last longer than currently anticipated and could have larger or more persistent effects.”
“Several members indicated that recent increases in survey-based measures indicated a risk that longer-term inflation expectations may be rising above levels consistent with the committee’s goals.”
“Most participants noted that the spread of the delta variant may temporarily delay the full reopening of the economy and restrict the hiring and supply of labor.”
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