FOMC minutes: Fed staff outlined $15B/month taper path
Highlights of the FOMC minutes:
- Four mentions of transitory inflation, including "staff continued to expect that this year's rise in inflation would prove to be transitory"
- 8 mentions of tapering, including an outline of the path
- No decision to proceed with taper was made at the meeting
- Participants generally assessed that if the recovery stays on track a gradual taper concluding around the middle of next year would likely be appropriate
- Taper process could begin in mid-November or mid-December
The illustrative tapering path was designed to be simple to communicate and entailed a gradual reduction in the pace of net asset purchases that, if begun later this year, would lead the Federal Reserve to end purchases around the middle of next year. The path featured monthly reductions in the pace of asset purchases, by $10 billion in the case of Treasury securities and $5 billion in the case of agency mortgage-backed securities (MBS). Participants generally commented that the illustrative path provided a straightforward and appropriate template that policymakers might follow, and a couple of participants observed that giving advance notice to the general public of a plan along these lines may reduce the risk of an adverse market reaction to a moderation in asset purchases. Participants noted that, in keeping with the outcome-based standard for initiating a tapering of asset purchases, the Committee could adjust the pace of the moderation of its purchases if economic developments were to differ substantially from what they expected. Several participants indicated that they preferred to proceed with a more rapid moderation of purchases than described in the illustrative examples.
It's interesting to note that seemingly no one was in favor of a slower pace of tapering.
- a number of participants raised the possibility of beginning to increase the target range by the end of next year
- Members agreed that the postmeeting statement should acknowledge the slowing of the economic recovery, as indicated in data received since the July meeting, as well as ongoing elevated inflation readings
- 79 mentions of inflation
- Staff continued to expect that this year's rise in inflation would prove to be transitory
- The staff also continued to judge that the risks around the inflation projection were tilted to the upside
- The possibility of more severe and persistent supply issues viewed as especially salient
- Many participants pointed out that the owners' equivalent rent component of price indexes should be monitored carefully
- A few participants noted that there was not yet evidence that robust
wage growth was exerting upward pressure on prices to a significant
- Most participants saw inflation risks as weighted to the upside
- A few participants commented that there were also some downside risks for inflation
There's more clarity here than I expected around the taper. I think it's safe to price in a $15B monthly taper now. That's roughly in line with expectations and the Fed's signals and would mean an 8 month taper, starting in Nov or Dec.
The inflation talk matches what Fed officials have been saying in public.