Fed Signals Asset Purchases Likely to Slow This Year

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The Wall Street Journal 18 August, 2021 - 01:27pm 33 views

When are the Fed minutes released?

The minutes for each regularly scheduled meeting of the Committee ordinarily are made available three weeks after the day of the policy decision and subsequently are published in the Board's Annual Report. federalreserve.govMinutes of the Federal Open Market Committee, July 27-28, 2021

Grace will hit Mexico as a hurricane, twice

Reuters 18 August, 2021 - 03:20pm

Updated 3:20 PM ET, Wed August 18, 2021

CNN's Michael Guy, Matt Rivers and Theresa Waldrop contributed to this report.

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Fed officials saw a path to slowing bond-buying this year, but debated when to start.

The New York Times 18 August, 2021 - 01:38pm

Federal Reserve officials are preparing to slow the central bank’s large purchases of government-backed bonds, the first step toward a more normal monetary policy setting as the economy heals from the pandemic — but when they met last month, they remained starkly divided over just when the pullback should happen.

Minutes from the central bank’s July 27-28 gathering showed that Fed officials generally thought they would soon meet their standard for slowing bond purchases, which they had previously established as “substantial further progress” toward the central bank’s maximum employment and inflation goals.

“Most” of the officials “judged that the standard set out in the committee’s guidance regarding asset purchases could be reached this year,” the release showed. But precisely when to begin remained a matter of active debate.

The snapshot of Federal Open Market Committee deliberations comes ahead of the central bank’s most closely watched annual gathering, an economic symposium in Jackson Hole in Wyoming that will take place next week. Jerome H. Powell, the Fed’s chair, will deliver a speech at the event, and many investors expect he could provide hints or details about the central bank’s coming policy move.

Mr. Powell and his colleagues are working against a complicated backdrop as the economy grows rapidly and as inflation and asset prices pop, but the labor market recovery remains incomplete, with nearly 7 million jobs still missing compared with employment levels at the start of the pandemic.

The Fed is still holding interest rates near zero and plans to do so until the labor market is more fully healed, which means monetary policy will continue to support the economy even once the bond buying begins to slow. Fed officials have suggested that they may favor raising interest rates by late 2022 or — more popularly — 2023.

Some officials who are eager to start to slow bond purchases soon have emphasized that moving early and quickly would allow the Fed to be more flexible when it comes to raising borrowing costs. The Fed is buying $120 billion in Treasury and mortgage-backed debt each month, and officials have said they would prefer to bring that policy to a close before lifting the federal funds rate.

The debate over timing was still unresolved in July.

“Various participants commented that economic and financial conditions would likely warrant a reduction in coming months,” the minutes released on Wednesday said. “Several others indicated, however, that a reduction in the pace of asset purchases was more likely to become appropriate early next year.”

How quickly the slowdown in buying will happen was also up for discussion, and participants expressed “a range of views on the appropriate pace of tapering asset purchases.”

The last Fed meeting came before the Labor Department reported that hiring in July was strong, creating a sunnier snapshot of the job market’s recovery.

“The uncertainty created by Delta, as well as the uncertainty over the post-summer labor market and the path of inflation, all reinforce our view that a tapering announcement is not imminent,” Ian Shepherdson, the chief economist at Pantheon Macroeconomics, wrote in a research note. “We think it will come in November, and even that is contingent on the Delta wave clearly subsiding before then.”

The Fed meets next on Sept. 21-22.

Gold futures settle lower, but move up after Fed minutes

MarketWatch 18 August, 2021 - 07:58am

“Tapering would reduce the supply of money on the economy, which is typically supportive of the metal,” he said. “It appears that the markets may have thought recent selling may be overdone, and the release of minutes by the Fed suggest that some support for gold will remain.”

Most of the top Fed officials said last month that they thought it would be appropriate to start reducing the pace of its asset purchases this year, according to minutes of their policy meeting released on Wednesday.

The minutes show, however, that there were sharp divisions on the tapering questions. Several Fed officials said they thought a reduction in the pace of purchases should start next year.

Reading between the lines, “the majority of U.S. central bankers appear to be comfortable starting to reduce QE this year as long as there are no major downside shocks to the economy,” said Matthew Weller, global head of research at FOREX.com and City Index.

“There were plenty of reasons to believe the minutes wouldn’t be a massive market mover, and that’s exactly what we’ve seen so far,” he said in emailed commentary. “The market initially read the minutes as more dovish, leading to a quick uptick in indices and gold, while Treasury yields and the U.S. dollar dipped” but some of those moves were quickly reversed, with most major markets “trading within spitting distance of their pre-minutes levels.”

Meanwhile, in a Barron’s Live interview with MarketWatch, St. Louis Fed President James Bullard said Wednesday that the U.S. economy won’t be derailed by the spreading delta variant of the coronavirus that causes COVID-19. Bullard said the economy has already made “substantial” progress — the benchmark for tapering the central bank’s $120 billion a month in asset purchases.

In electronic trading shortly after the Fed minutes’ release, gold futures moved up to trade at $1,789.20 an ounce.

Ahead of the Jackson Hole Symposium in late August, Lukman Otunuga, manager of market analysis at FXTM, said gold remains supported by “unease over the spread of the delta variant, concerns around the strength of China’s recovery and geopolitical tensions in Afghanistan.”

An announcement on tapering is expected at either next week’s symposium on monetary policy in Jackson Hole, Wyoming, or the Fed’s September meeting.

Read: Fed’s Powell uncertain about what the rise of COVID delta variant means for the economy

“It’s clear that most members think the Fed reached its inflation target of ‘inflation moderately above 2 percent for some time’,” said Marshall Gittler, head of investment research at BDSwiss, in a note Wednesday, ahead of the Fed minutes. “The deciding factor then is the labor market.”

Gittler said it appears that both Fed doves and hawks “want to see the autumn employment data, particularly around school reopenings, before beginning the process of tapering.”

Precious metals earlier briefly took a leg higher after a reading of U.S. housing starts for July declined by 7% after increasing by 3.5% in the prior month, according to data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Meanwhile, building permits rose 2.6% in July, compared with a decline of 5.3% in June.

Gold and silver have enjoyed buying amid uncertainty about the spread of the delta variant of the coronavirus. Weak data also has offered some support for recent buying, including a Tuesday report that revealed that Americans cut spending at retail stores in July, with retail sales down 1.1% or more than the 0.3% decline forecast by economists polled by The Wall Street Journal.

U.S. stock benchmarks closed lower for a second day Wednesday, tumbling in the final minutes of trade, as investors digested minutes of the Federal Reserve's July policy meeting.

Myra P. Saefong, assistant global markets editor, has covered the commodities sector for MarketWatch for 20 years. She has spent the bulk of her years at the company writing the daily Futures Movers and Metals Stocks columns and has been writing the weekly Commodities Corner column since 2005.

Mark DeCambre is MarketWatch's markets editor. He is based in New York. Follow him on Twitter @mdecambre.

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