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FOMC Minutes Show Fed Ready To Taper Earlier Than Anticipated

Courtesy of ZeroHedge View original post here.

Since the last FOMC meeting (June 16th) – when Chair Powell admitted The Fed was talking about talking about talking about talking about tapering – bond (prices) have soared, gold has been dumped as the dollar surged…

Source: Bloomberg

As a reminder, stocks tanked right after the Minutes, exaggerated by Bullard's hawkishness… but were miraculously saved coincidentally right at the moment when The PPT was called to The White House…

In recent days, the hawkish shift in market expectations that occurred right after the Fed meeting has waned a little…

Source: Bloomberg

Today's Minutes will be all about how much "talking about" talking The Fed members actually did, what assets they discussed (MBS?), and how many of them are fearful of the bubble they've blown.

As a reminder, 13 of 18 officials projected they would raise interest rates from near zero by 2023, with most expecting to raise their benchmark rate by 0.5 percentage point. Seven expected to raise rates next year. In March, most officials expected to hold rates steady through 2023.

Inflation remains transitory, we promise…

“Although inflation had risen more than anticipated, the increase was seen as largely reflecting temporary factors, and participants expected inflation to decline toward the Committee’s 2 percent longer-run objective.”

On 'talking about' the taper…

Participants discussed the Federal Reserve’s asset purchases and progress toward the Committee’s goals since last December when the Committee adopted its guidance for asset purchases.

The Committee’s standard of “substantial further progress” was generally seen as not having yet been met, though participants expected progress to continue. Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of incoming data. Some participants saw the incoming data as providing a less clear signal about the underlying economic momentum and judged that the Committee would have information in coming months to make a better assessment of the path of the labor market and inflation. As a result, several of these participants emphasized that the Committee should be patient in assessing progress toward its goals and in announcing changes to its plans for asset purchases.

Participants generally judged that, as a matter of prudent planning, it was important to be well positioned to reduce the pace of asset purchases, if appropriate, in response to unexpected economic developments, including faster-thananticipated progress toward the Committee’s goals or the emergence of risks that could impede the attainment of the Committee’s goals.

On their asset purchase scheme…

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

And the timing of the taper…

“Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of incoming data.”

On tapering of RMBS…

Various participants offered their views on the Committee's agency MBS purchases. Several participants saw benefits to reducing the pace of these purchases more quickly or earlier than Treasury purchases in light of valuation pressures in housing markets. Several other participants, however, commented that reducing the pace of Treasury and MBS purchases commensurately was preferable because this approach would be well aligned with the Committee's previous communications or because purchases of Treasury securities and MBS both provide accommodation through their influence on broader financial conditions. 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. In addition, participants reiterated their intention to provide notice well in advance of an announcement to reduce the pace of purchases.

On bubble fears:

“Participants noted that overall financial conditions remained highly accommodative, in part reflecting the stance of monetary policy, which continued to deliver appropriate support to the economy. Several participants highlighted, however, that low interest rates were contributing to elevated house prices and that valuation pressures in housing markets might pose financial stability risks.”

And it would appear a standing unlimited repo facility is coming…

… a substantial majority restated their view, conveyed at the April 2021 meeting, that the potential benefits of such a facility outweighed the potential costs. Participants broadly supported the terms presented by the staff for such a facility

But some members remain as dovish as ever, hoping to remain at these extremes for longer…

“The Committee’s standard of ‘substantial further progress’ was generally seen as not having yet been met, though participants expected progress to continue.”

Developing…

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Full Minutes below:


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