The minutes from the Federal Reserve’s July monetary policy meeting, released on the 18th, showed that most Fed officials believe it would be appropriate for the Fed to begin tapering its asset purchase program this year if the future recovery of the U.S. economy broadly meets expectations. Analysts believe that as the U.S. economy has made phased progress in recovering from the pandemic, and the side effects of quantitative easing policies have become increasingly evident, Fed officials are getting closer to reaching a consensus on beginning to exit quantitative easing within the year.
U.S. economic recovery has made progress
In response to the impact of the pandemic on the U.S. economy and financial markets, at the beginning of 2020, the Fed cut the target range for the federal funds rate to an ultra-low level of zero to 0.25% and launched a quantitative easing policy to inject substantial liquidity into the market. Starting from mid-2020, the Fed began purchasing U.S. Treasuries and agency mortgage-backed securities at a scale of $120 billion per month to lower long-term interest rates and stimulate economic recovery.
In December 2020, the Fed set conditions for reducing its bond-buying program, requiring “further substantial progress” toward achieving full employment and a 2% inflation target. The minutes from the Fed’s latest July monetary policy meeting showed that as of the end of July this year, the U.S. had met the inflation condition required for “further substantial progress,” but the employment condition had not yet been satisfied.
The minutes showed that most Fed officials believe that if the future recovery of the U.S. economy broadly meets expectations, the labor market will achieve 'further substantial progress' within the year...