Federal Reserve officials at their July gathering made plans to pull back the pace of their monthly bond purchases likely before the end of the year, meeting minutes released Wednesday indicated.
However, the summary of the July 27-28 Federal Open Market Committee gathering indicated that the central bankers wanted to be clear that the reduction, or tapering, of assets was not a precursor to an imminent rate hike.
“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,” the minutes stated, adding that the economy had reached its goal on inflation and was “close to being satisfied” with the progress of job growth.
Committee members stressed the need to “reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in the target range for the federal funds rate.”
Markets briefly rebounded after the minutes’ release but then turned negative again, with the Dow Jones Industrial Average down more than 120 points.
The FOMC voted at the meeting to keep short-term interest rates anchored near zero while also expressing optimism about the pace of economic growth.
In the post-meeting statement, the committee said the economy had made “progress” toward the dual goals of sustainable inflation around 2% and full and inclusive employment. The statement also noted that the “substantial further progress” benchmark had not been met, but markets took the statement to mean that the FOMC might start rolling back some of its policy accommodation soon.
Since then, investors have been parsing Fed officials’ public statements for clues on when the first step in the tightening process — the reduction, or tapering, of asset purchases — will begin. The minutes were expected to provide more depth on the thinking from individual FOMC members.
The market now largely expects the committee or Chairman Jerome Powell to make an announcement about tapering in the next month or two, with the process likely to begin before the end of the year.
Other areas of focus in the minutes will be the Fed’s view on the economy, specifically on the rising inflation pressures over the past several months. Most Fed officials see the highest inflation in decades to be transitory and likely to dissipate once supply chain issues are resolved and demand returns to pre-pandemic levels.
While the market is expecting tapering soon, it still doesn’t see interest rate hikes coming at least for another year or so. Futures contracts tied to the fed’s benchmark interest rate are pricing in about a 50% chance of a rate hike in November 2022 and a 69% chance of an increase the next month.
This is breaking news. Please check back here for updates.
Become a smarter investor with CNBC Pro.
Get stock picks, analyst calls, exclusive interviews and access to CNBC TV.
Sign up to start a free trial today.