WASHINGTON–The Fed is expected to release minutes today from its July 27-28 meeting, which should offer some clues about plans to start paring its monthly purchases of securities and to the direction of rates.
In December 2020 the Fed said it planned to continue its pace of bond purchases until officials were confident “substantial further progress” toward the goals of 2% average inflation and strong employment had been achieved. The Fed has been purchasing $80 billion in Treasury securities and $40 billion in mortgage securities each month.
When to begin paring those purchases has been the subject of many questions for more than a year, as CUToday.info has reported.
‘Important Answers’
“The answers are important to financial markets because Fed officials have said they would prefer to conclude the bond-buying program before considering when to raise interest rates from near-zero,” noted the Wall Street Journal. “At their June 15-16 policy meeting, 13 of 18 Fed officials projected they would raise rates by the end of 2023; seven expected to do so by the end of 2022.”
As CUToday.info also reported, on July 28 Fed Chairman Jay Powell said the Fed was still “a ways away from considering raising interest rates. It’s not something that is on our radar screen right now.”
The Evidence
The asset purchases have been designed to stimulate the economy by holding down long-term interest rates to spur borrowing and spending. But as one Fed official told the Journal, the surge in home prices is evidence that the program may be nearing a point of diminishing returns.
“If you can’t get housing materials and you can’t get construction workers to come back on site, but we do increase demand for housing, then it doesn’t do much for our employment mandate—but it does increase housing prices more than it otherwise would,” he said.
Bond yields have slid during 2021 even as the central bank has discussed plans to reduce bond purchases.