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The Federal Open Market Committee kept monetary policy unchanged in its July 28 decision, but signaled that they have started the tapering clock. The committee said that the economy has made “progress” toward their goals of full employment and inflation averaging 2% over the longer run, but not the “substantial further progress” they set in December 2020 as a condition for tapering to start. Specifically, the FOMC said “the economy has made progress toward” their goals of maximum employment and price stability; this is new language compared to the previous statement from June. The Fed will maintain its monthly purchases of $80 billion of long-term Treasurys and $40 billion of mortgage-backed securities until, in the FOMC’s view, the economy has made that “substantial” progress. The FOMC’s sentence on current inflation was unchanged from June: “Inflation has risen, largely reflecting transitory factors.” Fed officials have been consistent in their view that most of the acceleration in inflation in recent months is tied to post-pandemic mismatches between supply and demand, and that these price pressures are likely to be temporary. The FOMC maintained language, in the statement since December, saying that the committee does not expect to raise the federal funds rate, its key policy interest rate, “until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”
