FOMC Minutes: Growing Concerns about Inflation but Not Yet Ready to Taper
by Craig Dismuke, Dudley Carter
The Minutes from the FOMC’s June 15-16 meeting highlight progress towards the Committee’s economic goals but insufficient progress to warrant changing policy just yet. While a growing number of participants see upside risks to inflation, they generally remained unalarmed. Participants appear split on the technicalities of tapering asset purchases once the time is deemed appropriate.
As it relates to the recent increase in inflation, the Minutes note, “participants remarked that the actual rise in inflation was larger than anticipated.“ Looking forward, “a substantial majority of participants judged that the risks to their inflation projections were tilted to the upside because of concerns that supply disruptions and labor shortages might linger for longer and might have larger or more persistent effects on prices and wages than they currently assumed.“ Thirteen officials saw the risks to upside inflation versus just five who viewed the risks as broadly balanced and none who saw them to the downside. However, as it applies to monetary policy, officials coalesced around the conclusion that, “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.”
As for the timing of tapering asset purchases, the Minutes state, “The Committee’s standard of ‘substantial further progress’ was generally seen as not having yet been met.” However, the general assessment seen throughout the Minutes was that the economy continued to make progress. In fact, the economic environment has improved sufficiently for participants to agree to “begin to discuss their plans for adjusting … asset purchases” in coming meetings. Notwithstanding the improvement, officials again “reiterated their intention to provide notice well in advance” of any changes.
Regarding the composition of purchases, participants appear evenly split on the future path. “Several participants saw benefits to reducing the pace of [MBS] purchases more quickly or earlier than Treasury purchases in light of valuation pressures in housing markets.” In contrast and in seemingly equal number, “Several other participants, however, commented that reducing the pace of Treasury and MBS purchases commensurately was preferable.”
In totality, the Minutes shed no new light on the future path of monetary policy, but do reflect a growing uneasiness with the balance of inflation risks.