The Federal Reserve is happy with the progress the economy has made so far but cautions that the trajectory of the pandemic could derail things.
Driving the news: According to the minutes of the Federal Open Market Committee policy-setting meeting July 27-28, "various" participants said that tapering of the Fed's asset purchases should start relatively soon, while "several others" said it should start "early next year."
Why it matters: Unemployment has been coming down while prices have been inflating, conditions that are on track to meet the Fed’s definition of "substantial further progress."
- When the economy meets this vaguely defined milestone, the Fed is expected to taper its quantitative easing program.
- Taken together, "most" FOMC participants noted that if the economy continues growing the way it has been lately, then tapering should start by the end of the year.
Yes, but: The group agreed risks to economic growth were "skewed to the downside" and that uncertainty was "elevated."
- "In particular, the probability that the course of the pandemic would turn out to be more adverse than the staff's baseline assumption was viewed to be higher than the probability that a more favorable outcome would occur," the minutes read.
State of play: On a webcast Tuesday, Fed chair Jerome Powell acknowledged that COVID is "still casting a shadow on economic activity."
The big picture: The minutes released on Wednesday reflect what the Fed was thinking almost a month ago, and so the information is arguably a bit stale. That said, they are in line with expectations that a tapering announcement will come in one of the Fed’s upcoming FOMC meetings.
What to watch: The next major update we’ll get from the Fed is when Powell speaks at the Jackson Hole Economic Policy Symposium, Aug. 26-28.