By Yasin Ebrahim
Investing.com - Federal Reserve officials signaled it may be appropriate to start discussing a plan to rein in bond purchases at upcoming meetings, though continued to tilt dovish as the economy is still a ways off meeting its goals, according to the minutes of the Fed's April 27-28 meeting, released Wednesday.
At the conclusion of its previous meeting on April. 28, the Federal Open Market Committee, the Fed's rate-setting arm, kept its benchmark rate steady in a range of 0% to 0.25% and bond purchases steady at a $120 billion monthly pace.
But there are signs Fed members are growing comfortable with the idea of introducing the topic of bond purchase tapering at upcoming meetings should the economy continue to show improvement.
"A number of participants suggested that if the economy continued to make rapid progress toward the Committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchase," the minutes showed.
Still, the central bank members continue to lean toward an accommodative stance as there is long way to go until the economy makes "sustained progress" toward the Fed's maximum employment and inflation goals.
"[M]embers agreed that it would be appropriate for the Federal Reserve to continue to increase its holdings of Treasury securities by at least $80 billion per month and agency mortgage-backed securities by at least $40 billion per month until substantial further progress had been made toward the Committee's maximum-employment and price-stability goals," according to the minutes.
The central bank has outlined a three-part test that must be met before it would consider reining in monetary policy. The three part test includes maximum employment, inflation reaching 2%, and on track to run moderately above 2% for some time. But the recent run-up inflation hasn't dampened the Fed's view that price pressures will prove transitory.
"Participants also noted that the expected surge in demand as the economy reopens further, along with some transitory supply chain bottlenecks, would contribute to PCE price inflation temporarily running somewhat above 2 percent. After the transitory effects of these factors fade, participants generally expected measured inflation to ease."
The Fed's resolve to persist with an accommodative monetary policy has been strengthened recently after the April jobs report fell well short of expectations.
"We’re still more than eight million jobs short of where we were 14 months ago so there’s still a deep hole in the labor market," Federal Reserve Vice Chairman Richard Clarida said earlier this week. The jobs data shows "we have not made substantial further progress,” he added.
The red-hot inflation reports in recent weeks have stoked concern the Fed could find itself behind the curve, and be forced to aggressively tighten policy should its bet that inflation is transitory prove unfounded.
But some on Wall Street agree with the Fed's take on inflation.
Services segment inflation and supply-chain disruptions are two sources of inflation this year, but the overall pace of inflation is expected to be "modest," Wells Fargo (NYSE:WFC) said.
Services-segment inflation is climbing from a 10-year low as the economy reopens, and while bottlenecks in the supply chain could pressure input costs for goods "over the next 6 to 12 months […] we are already seeing supply bottlenecks subside," it added.