Federal Reserve Officials Ready to Reduce Bond Buying This Year

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Principal Points

• Minutes from the last Fed meeting indicated tapering could start by the end of the year
• Stocks slide broadly, Dow loses more than 380 points, futures point to the downside

Federal Reserve officials indicated they are mostly in agreement to start unwinding their ultra-loose monetary policies this year. Minutes released from the July 27-28 meeting of the Federal Open Market Committee (FOMC), revealed most members of the committee saw enough proof that the economy is heading to a level that would not require the full amount of $120bn in monthly asset purchases.

The bond-buying scheme of $120bn, of which $80bn go to Treasury securities, and $40bn in agency mortgage-backed securities, have been a major tool by the Fed to sustain the growth of the US economy for the last 17 months. The programs used as a response to counter the detrimental effects of Covid-19 on the economy have supported the record run in stocks since the market meltdown in March 2020.

As the economy rebounded around mid-2021, Fed policymakers began talking about slowing down or tapering, the pace of these purchases. The minutes from the last FOMC meeting, released Wednesday afternoon, show most Fed policymakers were in favor of scaling back the bank’s asset purchases in the coming months until the end of the year.

“Looking ahead, most participants noted that, provided that the economy was to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year,” the minutes stated.

Given that the 18 members of the FOMC are scheduled to gather three more times for their regular policy meetings in 2021, investors can expect to see the first steps toward reducing the ample monetary stimulus in any one of the three meetings.

The Fed’s next meeting is scheduled to happen on Sept. 21-22. While some committee members have said they would like to start tapering shortly after that meeting, the summary from the recent discussions, however, does not reveal such a consensus. It is more likely, according to the minutes, that Fed officials could agree to unwind their large-scale asset purchases after Fed’s Nov. 2-3 meeting.

Digital Assets Experience Pressure

The stock market endured a steep sell-off shortly after the release of the publication. All three major stock gauges in the US finished the day lower by roughly 1% each. The S&P500 fell 1.08% in what became its worst single-day drop since mid-July. The Nasdaq Composite declined 0.9%, dragged lower by losses in big tech names. Shares of Apple tumbled $3.83, or 2.55%, to $146.36.

The Dow Jones Industrial Average dropped over 380 points, or nearly 1.1%, logging a second consecutive day of losses. Earlier in the week, both blue-chip indexes, the Dow and the S&P500, notched records.

Meanwhile, in Europe, a cautious trading session defined the day as investors were prepared for uncertainty over the Fed’s meeting minutes. The pan-European Stoxx 600 ended the day mildly higher, up less than 0.1%.

On Thursday, the cautious and risk-averse approach to the financial markets remains. US futures are pointing to the downside, while European bourses opened for trading in negative territory.

Digital assets today are also under pressure. Bitcoin is currently in the red by about half a percent, changing hands at $44,350 per coin.