Inflation Was the Keyword in the FOMC Minutes

Minutes of the FOMC’s June 15-16 meeting revealed that keyword throughout the meeting was inflation.


July 7, 2021, | AtoZ MarketsThe  Federal Open Market Committee’s June 15-16 meeting summary showed that most of its members consider that the American economy is recovering in a good way.  Also, inflation is currently not an issue of concern and has a transitory effect as a result of the recovery.

Fed officials also mentioned that the information available suggested that U.S. real gross domestic product (GDP) was expanding in the second quarter at a pace that was faster than in the first quarter of the year.

However, the minutes also revealed that several FOMC’s members believe that  further reductions in social distancing and favorable financial conditions were expected to support output growth, even though the effects of fiscal stimulus on economic growth were starting to unwind.

Also, with the boost to growth from continued reductions in social distancing assumed to fade after 2021 and the further unwinding of fiscal stimulus, GDP growth was expected to step down in 2022 and 2023.

The topics discussed at the last FOMC meeting were:

  • Developments in Financial Markets and Open Market Operations
  • Staff Review of the Economic Situation
  • Review of the Financial Situation
  • Staff Economic Outlook
  • Participants’ Views on Current Economic Conditions and the Economic Outlook
  • Committee Policy Action

Most members agreed, according to the minutes, that the economy had yet to meet the “substantial further progress” benchmark the Fed has set out for any significant shifts in policy.

Read the full FOMC report here

What Was Said About Tapering

The so-called ‘tapering’ is the gradual withdrawal of economic stimulus from the U.S. economy by the Fed.

“In coming meetings, participants agreed to continue assessing the economy’s progress toward the Committee’s goals and to begin to discuss their plans for adjusting the path and composition of asset purchases,” the minutes stated.

“In addition, participants reiterated their intention to provide notice well in advance of an announcement to reduce the pace of purchases.”

Most participants noted the benefits of allowing banks to be counterparties to a domestic SRF, including more directly addressing liquidity pressures for participants in the federal funds market and promoting equitable access to liquidity across domestic counterparties.

The Keyword: Inflation

According to the minutes, the key word throughout the meeting was inflation. These are the most important points that were considered:

  • Consumer price inflation through April—as measured by the 12-month percentage change in the PCE price index—had picked up notably, largely reflecting transitory factors.
  • Recent 12-month change measures of inflation, using either PCE prices or the consumer price index (CPI), were boosted significantly by the base effects of the drop in prices from the spring of 2020 rolling out of the calculation.
  • A surge in demand as the economy reopened further, combined with production bottlenecks and supply constraints, contributed to the large recent monthly price increases.
  • Combined with reduced social distancing and more widespread vaccinations, key factors that influence consumer spending—including increasing job gains, the upward trend in real disposable income, high levels of household net worth, and low interest rates—pointed to strong real PCE growth over the rest of the year.
  • International financial market participants were focused on news about inflation and monetary policy communications.
  • The staff’s near-term outlook for inflation was revised up markedly, but the staff continued to expect the rise in inflation this year to be transitory.
  • The staff continued to view the risks around the inflation projection as roughly balanced.
  • On the upside, bottlenecks, supply disruptions, and historically high rates of resource utilization were seen as potential sources of greater-than-expected inflationary pressures, particularly if there were a significant rise in inflation expectations that altered inflation dynamics.
  • On the downside, if the effects of supply constraints proved to be transitory, as expected, then the inflation record from the past 25 years suggested the possibility that low underlying trend inflation and a flat Phillips curve could cause inflation to revert to relatively low levels despite a strengthening economy.

In summary, after the publication of the minutes, the markets did not have strong reactions, and the minutes were not as hawkish as expected, and showed that there is not yet strong support to begin reducing monthly asset purchases in the near term.


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