Meeting minutes reveal a schism inside the Fed over the threat of inflation.
According to minutes released Wednesday, some Federal Reserve officials urged faster action and were concerned about price increases at the meeting where they announced the pullback of their economic stimulus measures.
The Federal Reserve stated earlier this month that it would begin decreasing its monthly purchases of assets and securities aimed to assist the economy weather the Covid-19 downturn, with the goal of ending them entirely by the middle of next year.
The announcement comes as inflation rises well beyond the Fed’s two-percent objective, putting pressure on top officials such as Chair Jerome Powell, who has stated that the price hikes are only temporary and that raising rates too soon could prevent jobless people from being rehired.
According to minutes from the Federal Open Market Committee’s November 2-3 meeting, “a number of participants discussed the risk that, in light of recent elevated levels of inflation, the public’s longer-term inflation expectations might increase to a level above that consistent with the committee’s longer-run inflation objective” (FOMC).
Each month, the Fed purchased at least $80 billion in Treasury bonds and $40 billion in mortgage-backed securities.
Officials decided at the end of the FOMC meeting to reduce them by $10 billion per month for the former and $5 billion per month for the latter starting in November.
“Some participants preferred a somewhat higher rate of reductions that would result in a sooner finish to net purchases,” the minutes stated.
The Fed’s job includes controlling inflation, and interest rates are the central bank’s most powerful instrument for doing so.
Officials from the Federal Reserve have stated that they will not raise their interest rate from zero until the asset purchase taper is completed, and hastening that process would allow them to do so sooner.
The Fed was “prepared to modify the stance of monetary policy as necessary if risks materialize that could obstruct the committee’s goals,” according to a post-meeting statement.
According to the minutes, that language was added on purpose.
According to the document, “Members agreed that adding this phrase would recognize the need of preserving flexibility to adapt the stance of policy as appropriate in response to changes in the committee’s prognosis for the labor market and inflation.”