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.
“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.
“Participants remarked that the prospect of an effective vaccine program, the recently enacted fiscal support, and the potential for additional fiscal action had led them to judge that the medium-term prospects had improved,” according to the minutes. “With that said, participants agreed that the economy remained far from the Committee’s long-term goals and that the way forward remained highly uncertain, and that the pandemic continued to pose considerable risks to the outlook.”
Read more: US retail sales surprise with biggest advance in seven months
January data on retail sales, industrial production and producer prices released Wednesday beat forecasters’ estimates, underscoring the contribution to the economic recovery of a bipartisan tax relief package that was signed into law in December.
The better-than-expected numbers also highlight the momentum of the economy in early 2021, despite a post-holiday spike in Covid-19 cases last month. But the minutes of the January meeting showed that US central bankers were hoping to analyze temporary factors that could boost inflation in the coming months as Americans get vaccinated and the economy reopens.
“Many participants emphasized the importance of distinguishing between those unique changes in relative prices and changes in the underlying trend of inflation,” the minutes read. Such moves “could temporarily raise measured inflation, but are unlikely to have a lasting effect.”
(Updates with additional details throughout.)