August 20, 2021: -On Wednesday, Federal Reserve officials at their July gathering made plans to pull back the speed of their monthly bond purchases likely before the year-end; meeting minutes released.

Meanwhile, the July 27-28 Federal Open Market Committee gathering summary indicates that the central bankers wanted to clarify that asset reduction, or tapering, was not a precursor to an imminent rate hike. The minutes note that “some” members preferred to wait until early in 2022 to begin tapering.

“Looking ahead, most participants noted that, providing that the economy was to evolve as they anticipated, judging that it could be appropriate to start reducing the speed of asset purchases this year,” the minutes’ states, and further said that the economy had reached its goal on inflation and was “close to being satisfied” with the job growth.

However, committee members broadly agreed that employment had not met the “substantial further progress” benchmark the Fed has set before considering raising rates.

Addressing interest rate concerns, committee members also stressed the need to “reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in the target range for the federal funds rate.”

Fed officials have repeatedly said tapering will happen first, with interest rate hikes unlikely until the process has been completed and the central bank isn’t growing its balance sheet anymore.

After the minutes’ release, markets briefly rebounded but turned negative again, with the Dow Jones Industrial Average down over 150 points.

The FOMC voted at the meeting to keep short-term interest rates anchored near zero while expressing optimism about the speed of economic growth.

While the message about tapering had been telegraphed, the Fed has a tough communications job in ensuring its strategy is clearly outlined. There are concerns in the market that the Fed might set its tapering stress on a strict course even if the economy sours.

The post-meeting statement painted a generally upbeat look on the economy, but the minutes note some misgivings.

Officials judged that “uncertainty was quite high” about the outlook, with the Covid-19 delta variant posing one challenge and inflation another. Some members noted “upside risks to inflation,” particularly that conditions Fed officials have labeled as transitory might last longer than anticipated.

Those worried about inflation said tapering should start “relatively soon in light of the risk that the latest high inflation readings could prove to be more persistent than they had anticipated.”