FOMC minutes: Members agreed it would be appropriate to convey less certainty about the path of inflation

Highlights of the FOMC minutes

  • In their discussion of current conditions, participants noted that, with progress on vaccinations and strong policy support, indicators of economic activity and employment had continued to strengthen
  • Twelve-month rates of inflation abroad continued to rise, reflecting further increases in energy prices, persistent pressures from supply bottlenecks, and past exchange rate depreciation in some EMEs.
  • The staff’s common inflation expectations index, which combines information from many indicators of inflation expectations and inflation compensation, was little changed relative to the second quarter and remained at its highest level since 2014.
  • Over the intermeeting period, an increase in perceived inflation risks and an associated upward revision in the market-implied path of the federal funds rate contributed to increases in Treasury yields
  • participants remarked that demand for most consumer goods had remained strong
  • A number of participants noted that there was likely to be a drag on household spending as previous fiscal support faded
  • Many business contacts had experienced a worsening of supply chain problems
  • Participants judged that supply constraints would likely continue for longer than they had previously expected.
  • Participants anticipated better payroll numbers in the months ahead
  • Some participants highlighted the fact that price increases had become more widespread
  • Many participants pointed to considerations that might suggest that elevated inflation could prove more persistent
  • Participants generally supported the plan to implement reductions in the pace of net purchases of Treasury securities and agency MBS by $10 billion and $5 billion per month
  • Some participants preferred a somewhat faster pace of reductions
  • Various participants noted that the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee’s objectives

Since this meeting, the CPI and PCE inflation numbers moved higher. It’s safe to say the Fed dove Mary Daly was one of the participants who ‘generally supported’ the current taper pace but she’s already flipped towards a quicker taper.

In light of that, I don’t know if these minutes tell us all that much.

Markets are unmoved in the aftermath.

 Head of Trading Dimitar Kalapov


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