Most Federal Reserve officials agreed last month they could begin slowing their aggressive bond-buying program as soon as mid-November, the first step that policymakers will take to dialing back pandemic-era support for the U.S. economy.
Minutes from the U.S. central bank's Sept. 21-22 meeting show that policymakers are prepared to start gradually dialing back the $120 billion in monthly bond buys, a policy known as "quantitative easing" that's designed to keep credit cheap, as soon as next month.
"Participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate," the minutes, released Wednesday, said. "Participants noted that if a decision to begin tapering purchases occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December."
Policymakers said they expect to conclude the tapering process by July of next year, about one or two months earlier than previously expected.
Fed officials last month left interest rates at the rock bottom level where they have sat since March 2020, when COVID-19 forced an unprecedented shutdown of the nation's economy. But the central bankers they signaled they were preparing to start reducing the $120 billion in monthly purchases, a policy known as "quantitative easing" that's designed to keep credit cheap.
Reducing bond purchases will be the first step the Fed takes in returning to a more normal policy setting.
For months, the U.S. central bank has been grappling with how to manage the exit from the ultra-easy monetary policies put in place in March 2020 without triggering a market sell-off. Inflation has been rising at the fastest pace in more than a decade and is well above the Fed's preferred target of 2%, there are still about 7.7 million unemployed Americans.
Some officials said last month that a pandemic-driven spike in consumer prices could last longer than expected and remained elevated in 2022. Economic projections from the September meeting show that headline inflation expectations for this year are 3.7% – almost a full point higher than the May forecast, when Fed officials projected it would hit 3%.
"Most participants saw inflation risks as weighted to the upside because of concerns that supply disruptions and labor shortages might last longer and might have larger or more persistent effects on prices and wages than they currently assumed," the minutes stated.
The Labor Department reported Wednesday that consumer prices jumped 5.4% in September from a year earlier, the fastest pace in decades.