Fed minutes show growing debate over when to pull stimulus

Federal Reserve officials debated last month how quickly they would need to begin pulling back support for the U.S. economy as both the pace of recovery and inflation exceed their expectations.

Minutes from the June meeting of the Federal Open Market Committee (FOMC), the Fed’s monetary policymaking arm, released Wednesday showed increasing concern among some officials that the bank would be forced to hike rates or pare back bond purchases sooner than they had projected.

After the meeting, the Fed officials voted unanimously to keep the baseline interest range at 0 to 0.25 percent and said it would continue to purchase $120 billion combined in Treasury bonds and mortgage-backed securities until the economy showed “substantial further progress” toward a full recovery.

But minutes from that meeting showed a debate heating up among some Fed officials over how soon they would have to begin easing that support or whether the economy would continue to keep up its current pace.

“A substantial majority of participants judged that the risks to their inflation projections were tilted to the upside,” the minutes read. Those officials cited concerns about supply chain disruptions, which have pushed prices for many goods higher, and hiring troubles among many industries hit hard by the pandemic, including leisure, hospitality and manufacturing.

Other officials countered that the supply shortages and short-term factors pushing inflation higher could phase out even sooner than expected, making it too soon to accelerate tapering.

“Several of these participants emphasized that the Committee should be patient in assessing progress toward its goals and in announcing changes to its plans for asset purchases,” the minutes read.

Following the June meeting, Fed officials also upgraded their forecasts for economic growth and inflation from their projections in March. No Fed official expected the bank to hike interest rates until 2022 at the earliest but several anticipated a quicker, sooner series of rate increases.

The Fed has faced rising pressure to pull back on support for the recovery as inflation rises above levels expected by many bank officials. While Republicans have pinned most of the blame on President Biden and Democrats, GOP officials have also pushed the Fed to be more aggressive in response to rising inflation.

Inflation was largely expected to rise in 2021 after the onset of the coronavirus pandemic caused prices to plunge along with economic activity. Even though inflation was expected to rise based on prices correcting toward normal levels, severe supply chain disruptions has put much greater pressure on prices than had been anticipated.

The median projection of annual inflation among Fed officials rose from 2.4 percent in March to 3.4 percent, but both Fed leaders and staff economists expect inflation to fall back toward 2 percent in the following years. The White House also expressed confidence that inflation was settle down as short-term pandemic-related factors dissipate.