Fed policymakers prepared to curb support

A majority of Federal Reserve ratesetters think it could be time to wind down the central bank’s enormous monetary support unleashed in response to the Covid crisis this year.

Minutes breaking down discussions at the central bank’s latest Federal Open Market Committee meeting reveal most of its policymakers would support curbing the Fed’s bond buying programme this year.

“Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year,” the minutes said.

Policymakers said they were content with progress on prices and are near enough satisfied with the state of the jobs market.

However, FOMC members were keen to stress that a reduction in asset purchases would not necessarily be accompanied by a rate hike.

The Fed has been at pains to reiterate that it will not raise rates until asset purchase tapering is complete and its balance sheet is not expanding.

The central bank has said it will not wind down its ultra-loose monetary policy position until the US economy reaches full employment and average inflation hits two per cent over a prolonged period.

Latest data shows the unemployment rate in the US dipped 0.5 per cent to 5.4 per cent in July. The American economy added 943,000 in the same month. Meanwhile, US inflation is currently running at 5.4 per cent.

“The minutes to the July FOMC meeting show a Fed that is pretty split on most things, but recognises that we are getting much closer to the point of tapering,” analysts at ING said.

Several Fed ratesetters were not convinced enough progress had been made in the labour market, according to the minutes, and urged the central bank to hold off from scaling back monetary support until next year.