Minutes show divergence regarding asset purchases and the course of the economy


·        Disagreement over mortgage bonds: Many respondents saw the benefits of reducing the pace of these purchases faster or sooner than Treasury purchases in light of valuation pressures in the housing markets. However, some other respondents commented that it would be preferable to reduce the pace of Treasury and MBS purchases proportionally.

·        Discussion on asset purchases: At future meetings, participants agreed to continue assessing the economy’s progress towards the Committee’s objectives and begin discussing plans to adjust the route and composition of asset purchases. Also, participants reiterated their intention to give notice long before the announcement to slow down the pace of purchases.

·        On economic activity and inflation: While generally viewing the risks to the outlook for economic activity as balanced, a significant majority of respondents said supply disruptions and labor shortages could persist for longer and greater or more lasting effects on prices and wages than currently assumed, decided that the risks to inflation forecasts are on the upside due to the concerns that the period may continue. Several respondents expressed concern that long-term inflation expectations could rise to inappropriate levels if high inflation readings persist.

·        On financial conditions: Respondents noted that overall financial conditions remained highly supportive, partly reflecting the stance of monetary policy that continues to provide appropriate support to the economy. However, many respondents stressed that low interest rates contributed to higher housing prices and valuation pressures in housing markets could pose financial stability risks.


The minutes show that members are unsure about the economic recovery and inflation and are assessing the bilateral risks. At this point, the Bank is still in the process of evaluating the possibility of tapering, rather than taking an official step towards tapering. So, the current position is to discuss reducing asset purchases. The Fed will establish a preparation phase by communicating ahead of time. Therefore, the first asset purchase reduction will be made after the signal is given. Inflation still poses a risk in pushing the calendar forward. As a matter of fact, some news details about global commodity prices, which will put supply into trouble, were watched today. It is also a detail that will form a basis for action on the subject of tapering in practice regarding the rapid withdrawal of mortgage-based bonds.


Regarding inflation, of course, the market’s pricing of the yield curve today is confusing. But there is a mismatch between the state of the dollar and the state of the bond yield curve. There is no correlation, and this situation is not expected to be continuous. Continuing the upward trend of inflation pressure has the potential to shift the long side of the yield curve to the left, and this will be the stage where the market will have real difficulties. Therefore, the course of 10-year and 30-year interest rates is important. The minutes don’t add any extra hawkishness, but there’s a chance the center of gravity will shift in favor of hawks with new developments. However, whether inflation is temporary or permanent does not bring any new clarity to this issue. For now, the Fed is watching, just like us.

Kaynak Tera Yatırım
Hibya Haber Ajansı