US Federal Reserve policymakers last month began laying groundwork for an eventual retreat from easy monetary policy with a discussion of how to best control interest rates as they remove trillions of US dollars from the financial system.
No final decisions were taken, and minutes of the session, released on Wednesday, said the Fed was merely engaged in “prudent planning” and not signaling it was ready to “normalize” monetary policy or raise interest rates any time soon.
Still, the discussion at the central bank’s April 29 to 30 policy-setting session, coupled with fresh comments by top US officials, show an intensifying discussion over both exit-strategy details and a developing split over basic analysis of the US economy.
The next policy meeting will be in the middle of next month, when the panel will be joined by Stanley Fischer, the former Bank of Israel governor whose nomination to the Fed’s board was confirmed on Wednesday by the US Senate. The Senate has yet to act on his separate nomination to be Fed vice chairman.
Though the economic forecasts reviewed at last month’s meeting remained upbeat, the minutes indicated general agreement that any sustained uptick in inflation was still perhaps years off.
Participants in the meeting undertook an apparently wide-ranging discussion about US labor markets, dissecting research that suggests a falling share of short-term unemployed could prove an inflationary spark even with long-term joblessness running unusually high — a finding a number of officials said they considered suspect.
Indeed, sluggish wage gains were cited as one indication that the labor market could have more slack than the nation’s 6.3 percent jobless rate suggests.
However, other officials offered warnings.
“Some participants reported that labor markets were tight in their districts or that contacts indicated some sectors or occupations were experiencing shortages of workers,” the minutes reported.
The discussion over how to exit the Fed’s highly accommodative policy, once the time comes, is the latest sign that the era of near-zero rates and heavy bond buying is drawing to a close.
“Participants generally agreed that starting to consider the options for normalization at this meeting was prudent,” the Fed said. It added that the discussion “did not imply that normalization would necessarily begin sometime soon.”
Investors expect the Fed to raise rates in the middle of next year at the earliest, an expectation that was little changed by the central bank’s latest minutes.
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