Concerns Over Early Tightening Shift Expected
US Treasury Yields Rise
[Asia Economy New York=Correspondent Baek Jong-min] The U.S. Federal Reserve (Fed) has revealed that it expressed the opinion that it could discuss tapering asset purchases if the economy recovers strongly. However, the Fed indicated that strong economic growth and a surge in inflation are temporary, drawing attention to the possibility of future changes in monetary policy.
According to the minutes of the April Federal Open Market Committee (FOMC) regular meeting released on the 19th (local time), the members stated that if economic activity recovers significantly, there is a need to discuss shifting from accommodative monetary policy to tightening.
The minutes stated, "Many members suggested that if the economy makes rapid progress toward its goals, it would be appropriate to discuss adjusting the pace of asset purchases at future meetings."
However, the minutes also reported that "a majority of members agreed that it is appropriate to maintain asset purchases until employment and inflation goals are achieved."
This can be linked to expectations that the Fed, which has supported economic recovery through asset purchases amounting to $120 billion per month, may revise its stance on tapering asset purchases.
In the statement released after the April FOMC meeting, the Fed stated that asset purchases would continue until substantial further progress is made toward maximum employment and the 2% average inflation target. Fed Chair Jerome Powell also emphasized in a press conference immediately after the meeting that tapering asset purchases is premature.
Capital markets, paying close attention to the minutes, reacted immediately. The U.S. 10-year Treasury yield rose from 1.65% to 1.68%. On the New York Stock Exchange, the Dow Jones Industrial Average extended its losses.
Since these minutes reflect the situation before the unexpectedly weak April employment data and the surprise surge in the Personal Consumption Expenditures (PCE) price index, some view it as unlikely that the Fed’s stance will change drastically.
On the same day, James Bullard, President of the Federal Reserve Bank of St. Louis, said, "It is too early to talk about adjusting monetary policy." Raphael Bostic, President of the Atlanta Fed, stated, "We need to watch the economic situation very closely and nimbly."
The minutes also mentioned that the members expected a surge in demand due to the resumption of economic activity and temporary supply chain bottlenecks would drive inflation, but that inflation would ease in the future.
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