According to the minutes of the Federal Open Market Committee meeting at the end of April, officials generally said that the US economy remained “far” from its twin goals of full employment and price stability, and still required a very loose monetary policy. . But several have argued that the time may come relatively soon this year for the Fed to change its stance.
“A number of attendees suggested that if the economy continued to move rapidly toward the committee’s goals, it might be appropriate at some point in future meetings to start discussing a plan to adjust the pace of corporate purchases. ‘active’, the minutes indicate.
The Fed, chaired by Jay Powell, currently purchases $ 120 billion worth of treasury and agency mortgage-backed securities each month, and has pledged to continue at that rate until it sees “further substantial progress” towards its inflation and employment targets.
The minutes underscored the central bank’s commitment to handle any political transition with caution – suggesting a more cautious approach than that taken by former Fed Chairman Ben Bernanke in 2013, including discussions on withdrawing political support. have triggered so-called stricter financial conditions globally.
“Many participants stressed the importance for the committee to clearly communicate its assessment of progress towards its longer term goals well in advance of when it could be deemed substantial enough to warrant a change in the pace of asset purchases.” , indicates the minutes. “The timing of these communications would depend on the changing economy and the pace of progress towards the committee’s goals.”
The liquidation of US government bonds resumed on Wednesday, pushing up yields. The benchmark 10-year Treasury bill yield was 0.05 percentage point above 1.69%.
Shorter-dated bonds also joined the sell-off, with the yield on the two-year note climbing 0.02 percentage points to 0.35%. The five-year note jumped about 0.05 percentage point to 0.86%.
“They don’t release this information without knowing it has an impact,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “This is the first clue, but it will be a gradual process. All language is conditional. They allow themselves a lot of flexibility. “
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The FOMC meeting in late April took place before a report on relatively weak employment and data showing rising consumer prices raised concerns about labor inequality and rising employment. inflation, complicating forecasts for the trajectory of the US recovery after the pandemic.
Most US policymakers have maintained a relatively optimistic approach to inflation. The “surge in demand as the economy reopens further” would push consumer price inflation “somewhat above” 2%, but “after the transitory effects of these factors abate, participants generally expected a decrease in measured inflation, ”according to the minutes.
“Over the longer term, participants expected inflation to be at levels consistent with meeting the committee’s goals over time.”