By Yasin Ebrahim

Investing.com – Federal Reserve policymakers said the central bank could taper its monthly bond purchases in mid-November or mid-December, but debate on how soon to hike rates continues to divide members, according to the minutes of the September meeting. 

At the conclusion of its previous meeting on Sept. 22, the Federal Open Market Committee kept its benchmark rate in a range of  0% to 0.25%, but indicated that it could begin scaling back its $120 billion monthly bond purchases at the next meeting.

According to Fed minutes, “Participants indicated that if the decision was made at the next meeting for tapering purchases, tapering could start with the monthly purchasing calendars beginning in either Mid-November (or mid-December)”.

Federal Reserve plans to end its taper on bond purchases in mid-2022. It points to an average monthly taper at $15 billion. 

Minutes reveal that the path involved monthly cuts in the rate of asset purchase, with $10 billion occurring for Treasury securities and $5 billion for agency mortgage-backed securities. 

However, the Fed has been under pressure from inflation to start laying the foundations for rates hikes. Fed members differ on the timing of rate hikes, and also on the date at which the labor market will reach maximum employment.

Some members feel it is appropriate for the rates to remain at the lower limit or close over the next few years. But a number of participants  “raised the possibility of beginning to increase the target range by the end of next year because they expected that the labor market and inflation outcomes specified in the Committee’s guidance on the federal funds rate might be achieved by that time,” the minutes showed. Some participants believed that inflation would remain high in 2022, with upside risks. 

Further positive economic data, particularly in the labor market, where unemployment continues to decline, may force the Fed’s hand. 

“There are risks of a little earlier than expected interest rate increase … as we’re likely to get good economic data that make the Fed feel more comfortable about normalizing interest rates,” Eric Green, chief investment officer of equity at Penn Capital told investing.com in a recent interview.

It is unlikely that the rise in Treasury yields, which will probably follow tightening monetary policy, will cause the economy to crash.  “Rates going from one and a half percent to maybe two or even two and a half percent over the next 12 months, is not going to choke off the recovery,” Green added.