Federal Reserve building in Washington DC, USA
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Federal Reserve officials began discussing at their meeting last month the mechanics of reducing their huge monthly bond purchases that are used to keep longer-term interest rates in check.

The debate, revealed in the minutes of the Fed’s June meeting released Wednesday, reflected a broadly positive outlook on the economy among Fed policy-makers but also some concern that higher inflation could prove more persistent than the central bank has previously indicated.

A few policy-makers “mentioned that they expected the conditions for beginning to reduce” bond purchases would “be met somewhat earlier than they had anticipated at previous meetings in light of incoming data,” the minutes said.

The Fed is buying $120 billion a month in Treasury securities and mortgage-backed bonds to keep longer-term interest rates low and encourage more borrowing and spending. It has said that it will keep making the purchases until the economy makes “substantial further progress” toward its goals of full employment and an inflation rate slightly above 2%.

But there is a clear split on the Fed’s policy-making committee, with some officials cautioning that recent economic reports provide “a less clear signal about the underlying economic momentum.”

“Several of these [officials] emphasized that the [Fed] should be patient” about making any changes to its bond purchase plans, the minutes said.

After the June 15–16 meeting, the Fed issued a statement and a set of economic projections that signalled that it would potentially dial back its low-interest rate policies earlier than it had previously projected. The policy-makers forecast that they would hike the Fed’s benchmark short-term interest rate twice by the end of 2023. In March they had indicated no rate hikes would occur before 2024.

Most economists still expect a reduction, or tapering, of those purchases to begin by late this year or early next year, with an announcement of the change potentially occurring in late August at the Fed’s annual conference at Jackson Hole, Wyoming.

Some differences over the timing of the tapering have emerged among the Fed’s regional bank presidents, with Dallas Fed President Robert Kaplan saying last week that he favoured pulling back on the purchases “sooner rather than later.”

Yet, San Francisco Fed President Mary Daly, in an interview with The Associated Press, said last week that it would be “appropriate” to consider tapering later this year or early next year. But she cautioned that the economy is “far from full employment,” one of the Fed’s two goals, along with price stability.