Fed Says Tapering May Start This Year, Stablecoins Pose Threat

The Federal Reserve may start to taper asset purchases this year and officials discussed the risk of stablecoins, July’s FOMC meeting minutes show.

article-image

Source: Shutterstock

share

key takeaways

  • Central bank asset purchase tapering may start this year, The Federal Reserve Open Markets Committee minutes show
  • Committee members raised concerns about stablecoins and their lack of transparency

The Federal Reserve may start tapering asset purchases and scale back its easy-money monetary policies this year, minutes from the July Federal Open Markets Committee (FOMC) meeting show. 

Most Fed officials said that the central bank’s inflation expectations have been sufficiently met and there has been progress made toward reducing unemployment. 

“All participants assessed that the economy had made progress toward the Committee’s maximum-employment and price-stability goals since the adoption of the guidance on asset purchases in December,” the minutes read. “Most participants judged that the Committee’s standard of substantial further progress toward the maximum-employment goal had not yet been met.” 

In terms of tapering execution, committee members, who met in late July, vary in how they think about the timing, pace and type of tapering.

In terms of bond purchases, most participants “saw benefits in reducing the pace of net purchases of Treasury securities and agency mortgage-backed securities proportionally,” the minutes revealed. Other members expressed interest in reducing MBS purchases more quickly than Treasuries.

“Several participants commented on the benefits that they saw in reducing agency MBS purchases more quickly than Treasury securities purchases, noting that the housing sector was exceptionally strong and did not need either actual or perceived support from the Federal Reserve in the form of agency MBS purchases or that such purchases could be interpreted as a type of credit allocation,” the minutes read.

The risk of stablecoins

Committee members also discussed stablecoins in July. Officials remarked that these “new financial arrangements” lack structural maturity and exist within an “underdeveloped regulatory framework.”

“A few of these participants highlighted the fragility and the general lack of transparency associated with stablecoins, the importance of monitoring them closely, and the need to develop an appropriate regulatory framework to address any risks to financial stability associated with such products,” the minutes noted.

Fed Chairman Jerome Powell has said in the past that the establishment of a central bank-backed digital currency would make the market less reliant upon stablecoins.

“You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital US currency,” Powell said during testimony before the House financial services committee in July. “I think that’s one of the strong arguments in its favor.”

The FOMC meets next in late September. Investors are also awaiting the Jackson Hole Economic Policy Symposium on August 26-28, when central bankers, finance ministers, academics, and financial market participants from around the world will meet to discuss issues related to economic policy.

This story was updated at 3:42PM EST.

Want more investor-focused content on digital assets? Join us September 13th and 14th for the Digital Asset Summit (DAS) in NYC. Use code ARTICLE for $75 off your ticket. Buy it now.

Tags

Upcoming Events

Hilton Metropole | 225 Edgware Rd, London

Mon - Wed, March 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience: Attend expert-led panel discussions and fireside chats Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts.

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research report - cover graphics (1).jpg

Research

In this report, we dive into crypto private market data to gather insights on where the future of the industry is headed. Despite a notable downturn in private raises, capital continues to infuse promising projects that aim to transform payments, banking, consumer experiences, community, and more, with 2023 being the fourth-largest year for crypto venture capital.

article-image

The results mark “a major positive inflection point,” one analyst says, as the exchange carries net income momentum into a crypto rally

article-image

While the slate of 10 US spot bitcoin funds have tallied $4.6 billion of net inflows thus far, half of the field is lagging the leaders

article-image

Trading volumes totalled $154 billion in Q4, including $125 billion in institutional volume

article-image

DeFi on Bitcoin is all the rage right now and Stacks is positioned to benefit

article-image

The Boston Globe reports that lawyer John Deaton is weighing a possible bid

article-image

Ethereum’s Dencun upgrade will enable Uniswap v4 to optimize smart contracts for complex functionality