Fed minutes: controversy continues Monetary policy will continue to ease or tighten?

The Fed released the minutes of its April monetary policy meeting, and some Fed officials want to discuss tapering the Fed’s massive bond purchase program at a future meeting. U.S. stocks extended losses after the release of the minutes.

Fed minutes: controversy continues Monetary policy will continue to ease or tighten?

On Wednesday afternoon EST, the Federal Reserve released the minutes of its April monetary policy meeting, with some Fed officials hoping to discuss tapering the Fed’s massive bond purchase program at a future meeting. U.S. stocks extended their losses after the minutes were released.

Former U.S. Treasury Secretary Lawrence Summers believes that the Fed may be forced to tighten monetary policy reflexively, which will spook the market and even damage the real economy.

Summers harshly criticized the Fed’s loose monetary policy, accusing the Fed of creating a “dangerous complacency” in the financial markets and misjudging the economic situation.

Summers made the comments at a conference hosted by the Federal Reserve Bank of Atlanta, marking a marked escalation in his attacks on the Fed. The Harvard economist, who served as the president’s top adviser in the Democratic administration, had criticized President Biden’s fiscal stimulus package earlier this year for being too strong.

Summers said monetary and fiscal policymakers “have greatly underestimated the risks that a prolonged period of very low interest rates poses to financial stability and conventional inflation.

The Fed vowed to keep U.S. interest rates near zero until the economic recovery reaches certain milestones, including achieving full employment. The Fed also predicted that the spike in inflation is temporary. The latest median forecast by Fed officials shows that very low interest rates will be maintained until at least 2024.

Summers said, “Policy projections that interest rates may not rise for nearly three years are creating a dangerous complacency.”

Several Federal Reserve officials said this week that the central bank is closely monitoring economic developments and will be prepared to adjust policy if necessary.

James Bullard, president of the Federal Reserve Bank of St. Louis, told reporters after a speech Wednesday, “If we feel that the epidemic is essentially behind us and it’s not going to come back in some surprising way, then we can talk about adjusting monetary policy. I don’t think it’s there yet, but it does look like it’s close.”

Atlanta Fed President Raphael Bostic made similar remarks in a Bloomberg TV interview.

Bostic said Wednesday, “We have to be very flexible as far as our monitoring of the economy and our policy in response.”

Long-term bond yields jumped and stocks extended losses after the minutes were released. 10-year U.S. bond yields rose as high as 1.692 percent, up from 1.62 percent in early trading Wednesday.

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