According to minutes of the September meeting, Federal Reserve officials may begin to reduce the extraordinary assistance they provide to the economy as early as mid-November according to Wednesday's release.
According to the meeting summary, members felt that the Fed is close to achieving its economic goals. They could soon normalize policy by slowing down its monthly asset purchases and thereby begin to normalize it.
Tapering is a process whereby the Fed will slowly reduce $120 billion per month in bond purchases. Minutes indicated that the central bank would likely begin by cutting $10 billion per month in Treasurys, and $5 billion each month in mortgage-backed security purchases. The Fed currently purchases at least $80 Billion in Treasurys and $40 Billion in MBS.
Mid-2022 is the target date for purchases to be completed if there are no disruptions.
According to the minutes, participants believed that, as long as the economic recovery was on track, a gradual tapering would be appropriate. This would likely take place around the middle next year.
The summary stated that participants noted that if there was a decision at the next meeting to start tapering purchases, then the tapering process could begin with the monthly purchase calendars starting in mid-November or mid December."
Next meeting of the Fed is Nov. 2-3. Most Fed watchers believe that tapering will begin in November, rather than the usual October start. They also expect a December liftoff.
According to the minutes, members' estimates were consistent with net purchases gradually tapering in July next year.
The September policymaking session saw unanimous support for a low benchmark short-term borrowing interest rate of zero to 0.255% by the committee.
The summary of the committee's economic expectations was also released by the committee, which included projections for GDP growth and inflation. The members lowered their GDP estimates for this calendar year, but increased their outlook for inflation and stated that they expect unemployment will be lower than in earlier estimates.
The committee showed that it may raise interest rates in 2022 by displaying its "dot plot" showing individual members' expectations. According to CME FedWatch, markets are currently pricing in the September rate hike. The minutes were released and traders raised the probability of a September rate hike to 65%, from 62%.
Officials stressed, however, that a tapering decision shouldn't be taken to mean there are pending interest rate increases.
Some members expressed concern that the current inflation pressures could last longer than anticipated. Traders project a 46% chance for two rate increases in 2022.
According to minutes, "Most participants viewed inflation risks as weighing in the upside due to concerns that supply disruptions or labor shortages might last for longer and might have greater or more persistent effects than they currently assume on prices and wages."
It was noted in the document that some participants suggested that there might be some "downside risk" to inflation if long-standing factors that have held prices down come back into play. Fed officials are largely consistent in stating that current price rises are temporary and caused by supply chain bottlenecks and other factors likely not to subside.
However, inflation pressures are continuing with Wednesday's reading showing that consumer prices have increased by 5.4% in the past year. This is the fastest rate of inflation for decades.
