Fed officials saw the pace of bond buying continue for ‘some time’

Photographer: Stefani Reynolds / Bloomberg

In January, Federal Reserve officials hoped it would be “some time” before the conditions were met to cut their massive bond purchases, leaving open the question of whether any downsizing could begin before 2022.

“With the economy still far from those targets, participants judged it likely it would take some time to make further substantial progress,” according to the minutes of their Jan.26-27 meeting, released Wednesday.

The account reinforced the dovish message from Fed Chairman Jerome Powell, who said last week that the US is “a long way from a strong labor market whose benefits are widely shared,” noting that employment was still nearly 10 million jobs below pre-coronavirus levels. the pandemic began. It’s a topic that he will likely return to next week in biannual testimony before Congress.

Investor optimism drives equilibrium inflation rates to new highs

“Some time” in that context will probably mean several quarters, “given the uncertainty that they still see and how far the conditions are from being acceptable,” said Roberto Perli, a former Fed economist who is now a partner at Cornerstone Macro in Washington.

A positive outlook for the US economy since the beginning of the year has added to investor speculation about when the Fed will begin to reduce the bond buying program, which is currently running at a rate of $ 120 billion in stock purchases. backed by mortgages and Treasury. per month.

Read more: Fed disagreement and bond volatility are in Powell’s progressive future

While some regional Fed chairmen have raised the possibility of reducing bond purchases later in 2021 if the economy performed better than expected, Powell has He called that talk premature, citing lessons from the 2013 taper tantrum, when news that the central bank was thinking of cutting bond purchases rattled markets and hit the economy.

Official central bank guidance states that it will continue to buy at that rate until the economy has made “additional substantial progress” towards full employment and its 2% inflation target. But yields on U.S. Treasuries have risen amid heightened optimism that President Joe Biden and Congressional Democrats will authorize more tax relief measures, speeding up the economy’s recovery.


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