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Federal Reserve Update

According to the records of the Fed’s most recent meeting, most Fed officials believe that the Fed may begin to withdraw its large-scale pandemic stimulus plan later this year.

The minutes of the July meeting of the Federal Open Market Committee show that officials have accelerated discussions about finally ending the $120 billion monthly asset purchase plan implemented since the outbreak of the Covid-19 economic crisis.

Records show that Fed officials are gradually reaching a consensus on when to start “shrinking” its bond purchase program, and the central bank has pledged to maintain the program until it sees its average 2% target “making substantial further progress” inflation and maximum employment.

The minutes of the meeting showed: “Most participants pointed out that if the economy generally develops according to their expectations, they think it may be appropriate to start to reduce the pace of asset purchases this year.”

The minutes of the meeting show that most committee members are “satisfied” that the inflation target has been achieved, but are not yet convinced that the employment target has been achieved.

Driven by consumer activity, economic growth has rebounded sharply from the worst economic contraction last year, and supply constraints have pushed up inflation, which is much higher than the level initially expected by policymakers and economists.

At the same time, the spread of the more contagious variant of the Delta coronavirus has renewed concerns about the recovery of the labor market, which is progressing slowly, partly because pandemic concerns and childcare issues prevent people from returning to the labor market. .

The minutes of the meeting showed that officials still differed on the exact timing and speed of the reduction in debt purchase plans, and some participants hinted that action may be necessary “in the coming months.”

However, due to uncertain economic prospects, “a few others” suggested that the start of the gradual reduction should be postponed until early next year.

Last month, Federal Reserve Chairman Jay Powell stated that “there are multiple views on the right timing.”

In the weeks since the July policy meeting, the Fed has kept the main interest rate close to zero, and several senior officials have expressed different views on the pace of curtailing stimulus measures.

Eric Rosengren of the Boston Fed is one of those who supports a faster retreat. Tell The Financial Times said this week that he would support the scale reduction announced next month and support the central bank to stop buying US Treasury bonds and institutional mortgage-backed securities before mid-2022.

James Brad of the St. Louis Fed, who will join Rosengren as a voting member of the policy-making committee next year, also said earlier on Wednesday that he hopes this process will end in the first quarter of next year, and is expected to be in the last three months of 2022. Raise interest rates at a certain point in time.

Not all officials hold this “hawkish” view. Mary Daly, chairman of the San Francisco Fed, is one of those who said that the labor market still needs to make more progress.But she recently Tell The British “Financial Times” stated that the central bank may reach the threshold to start reducing bond purchases before the end of the year.

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