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Summary
- The Fed has said that it would tighten the monetary policy, if the economy improves.
- The Fed hints at truncating its bond purchases programme.
- The balance sheet of Fed has doubled during the pandemic.
The US Federal Reserve is mulling to tighten the monetary policy if the economic conditions improve, according to the minutes of the April monetary policy meet released overnight.
“A number of participants suggested that if the economy continued to make rapid progress toward the Committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the summary stated.
Markets would be keenly watching when Fed decides to trim its bond purchases – which currently stand at US$120 billion each month.
As a result, the Federal Reserve has seen it balance sheet double during the pandemic – to almost US$7.9 trillion.
The move comes despite the inflation in the country being at a 13-year high – in line with the Fed’s posturing that economic growth takes precedence over controlling the price rise.
In April, the Federal Open Market Committee voted in favour of holding the benchmark short-term borrowing rates near zero level and keeping the bond purchase level intact.
In the meeting, the Fed also upgraded its view on the economy, saying growth has “strengthened” and inflation was rising.
However, Fed Chairman Jerome Powell was quick to sound a note of caution after the meeting as he said that the recovery remains “uneven and far from complete”.
