Category: Economy

U.S. businesses are experiencing escalating inflation that is being aggravated by a shortage of goods and likely will be passed onto consumers in many areas, the Federal Reserve reported Wednesday.

In its periodic “Beige Book” look at the nation’s economic picture, the central bank also reported that growth overall had “downshifted slightly to a moderate pace” amid rising public health concerns during the July-through-August period that the report covers.

“The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions,” the report said.

Rising inflation pressures are part of that picture in which a shortage of workers is being met by higher salaries.

The report noted that inflation is “steady at an elevated pace,” with half the Fed’s 12 districts reporting “strong” pressure while the other half said it was “moderate.” However, the details of the report show that the issue is growing. The Fed’s preferred inflation gauge showed an increase of 3.6% in July, but most other measures are higher.

“With pervasive resource shortages, input price pressures continued to be widespread,” the report said.

Businesses reported “substantial escalation in the cost of metals and metal-based products, freight and transportation services, and construction materials,” though timber moved lower.

They also said the price pressures at the supply level likely will find their way to store shelves.

“Even at greatly increased prices, many businesses reported having trouble sourcing key inputs,” the report said. “Some Districts reported that businesses are finding it easier to pass along more cost increases through higher prices. Several Districts indicated that businesses anticipate significant hikes in their selling prices in the months ahead.”

The Beige Book release comes as the Fed debates whether to withdraw some of the extreme policy accommodation it has provided since the pandemic began. Specifically, officials are considering tapering monthly bond purchases, probably before the end of the year.

Those in favor of keeping policy in place worry primarily about the state of employment. The unemployment rate has fallen to 5.2%, but payroll growth slowed considerably in August amid fears over the Covid delta variant.

The Beige Book said all districts reported job growth, though it varied from “slight to strong.” Business contacts cited “extensive labor shortages” despite “strong” wage growth particularly among lower earners, the main area the Fed is targeting with a policy adjustment it approved a year ago.

“Employers were reported to be using more frequent raises, bonuses, training, and flexible work arrangements to attract and retain workers,” the report said.

Job offerings totaled a record 10.9 million in July, the Labor Department reported Wednesday. Hirings, though, were little changed as businesses deal with the labor shortage.

Now might be a good time for the Federal Reserve to start worrying about inflation.

August’s jobs report, besides being a big disappointment on the 235,000 headline number, also showed that even with weak hiring, wages are rising.

Average hourly earnings jumped 0.6% for the month, about double what Wall Street had been expecting, and the increase from a year ago stood at a robust 4.3%, up from a 4% rise a month ago. Even leisure and hospitality, which saw zero net job growth in August, saw wages jump 1.3% for the month and 10.3% on the year.

Those numbers come as the Fed is weighing when to start pulling back on the historically easy monetary policy in place since the early days of the Covid-19 pandemic. Some voices on Wall Street expect the wage and inflation numbers to start resonating with Fed officials.

“The 5.2% unemployment rate and rapidly rising wages suggest building inflationary pressure that will ultimately lead to more hawkish policy,” Citigroup economist Andrew Hollenhorst wrote in a detailed analysis of the current jobs situation.

While Fed officials mostly discuss the total payroll gains, Hollenhorst said he “would expect this rhetoric to shift a bit, perhaps at the September [Federal Open Market Committee] meeting, with more focus on the high level of job openings and increasing wages.”

Fed Chairman Jerome Powell went to great lengths in his annual speech in August during the central bank’s Jackson Hole symposium to knock down concerns about rising wage pressures as well as inflation overall, despite consistently higher numbers.

“Today we see little evidence of wage increases that might threaten excessive,” Powell said during the Aug. 27 speech. Measures Powell said he follows – he did not mention the Labor Department’s monthly average hourly earnings figure – point to “wages moving up at a pace that appears consistent with our longer-term inflation objective.”

One specific measure Powell mentioned was the Atlanta Fed’s Wage Growth Tracker.

That measure looks at wages on monthly and 12-month basis and then uses a three-month moving average to iron out distortions. On a smoothed level, the tracker is showing wages rising at a 3.7% pace, fairly consistent with the past few years. Without smoothing, the 12-month rate runs to 4.2%, which is the highest since 2007 and representative of how bumpy the data has gotten lately.

The Atlanta Fed will next update the tracker Friday, giving the Fed another look at potential pressures that could trigger a wage-price spiral, which economists consider “bad” inflation.

Fed officials thus far have attributed higher inflation numbers to supply issues. A continued rise in wages could signal that demand is becoming a factor.

“When it is difficult to disentangle demand from supply effects, price signals become more important to assess the extent of excess demand,” wrote Nomura chief economist Rob Subbaraman.

To be sure, there also is evidence that some of the issues that might spur inflation could abate ahead, particularly some of the supply chain issues Powell has cited.

The chairman also noted that unit labor costs remain low, meaning that companies still aren’t spending substantially more for productivity, which also could tamp down inflation.

“They’re taking a lot of solace in all these other factors,” said Mark Zandi, chief economist at Moody’s Analytics. “Inflation is on their radar screen, but it’s not blinking red, not even yellow.”

The rising wage numbers under most circumstances would be considered a positive.

However, the gains trailed the headline consumer price index growth of 5.4% in July and only matched the 3.6% increase when stripping out food and energy prices in July, the most recent month for which data is available.

Some central bank officials and economists worry that easy Fed policy is feeding inflation and starting to cause more harm than help. Rising home prices and high inflation expectations from consumers are fueling some of those fears.

“It is not surprising that a combination of doubling central bank assets over the past 18 months, massive fiscal stimulus, and a skill mismatch in the labor market has resulted in inflation rising to levels not seen in decades,” wrote Komal Sri-Kumar, president of Sri-Kumar Global Strategies. “Drilling a square peg into a round ole does not solve problems. It worsens it.”

Still, Zandi thinks Powell and the Fed will be content with allowing wages to rise for now.

“It’s not like they’re dismissing this as an issue. It’s a factor in their thinking about broader inflationary pressures,” he said. “But so far, they’d say the wage growth they’re observing is more a feature than a bug.”

Job creation for August was a huge disappointment, with the economy adding just 235,000 positions, the Labor Department reported Friday.

Economists surveyed by Dow Jones had been looking for 720,000 new hires.

The unemployment rate dropped to 5.2% from 5.4%, in line with estimates.

August’s total — the worst since January — comes with heightened fears of the pandemic and the impact that rising Covid cases could have on what has been a mostly robust recovery. The weak report could cloud policy for the Federal Reserve, which is weighing whether to pull back on some of the massive stimulus it has been adding since the outbreak in early 2020.

“The labor market recovery hit the brakes this month with a dramatic showdown in all industries,” said Daniel Zhao, senior economist at jobs site Glassdoor. “Ultimately, the Delta variant wave is a harsh reminder that the pandemic is still in the driver’s seat, and it controls our economic future.”

Leisure and hospitality jobs, which had been the primary driver of overall gains at 350,000 per month for the past six months, stalled in August as the unemployment rate in the industry ticked higher to 9.1%.

Instead, professional and business services led with 74,000 new positions. Other gainers included transportation and warehousing (53,000), private education (40,000) and manufacturing and other services, which each posted gains of 37,000.

Retail lost 29,000, with the bulk coming from food and beverage stores, which saw a decrease of 23,000.

“The weaker employment activity is likely both a demand and supply story — companies paused hiring in the face of weaker demand and uncertainty about the future while workers withdrew due to health concerns,” Bank of America economist Joseph Song said in a note to clients.

The report comes with the U.S. seeing about 150,000 new Covid cases a day, spurring worries that the recovery could stall heading into the final part of the year.

“Delta is the story in this report,” said Marvin Loh, global macro strategist for State Street. “It’s going to be a bumpy recovery in the jobs market and one that pushes back against a more optimistic narrative.”

The month saw an increase of about 400,000 in those who said they couldn’t work for pandemic-related reasons, pushing the total up to 5.6 million.

“Today’s jobs report reflects a major pullback in employment growth likely due to the rising impact of the Delta variant of COVID-19 on the U.S. economy, though August is also a notoriously difficult month to survey accurately due to vacations,” said Tony Bedikian, head of global markets at Citizens.

Still, the news wasn’t all bad for jobs.

The previous two months saw substantial upward revisions, with July’s total now at 1.053 million, up from the original estimate of 943,000, while June was bumped up to 962,000 from 938,000. For the two months, revisions added 134,000 to the initial counts.

Also, wages continued to accelerate, rising 4.3% on a year-over-year basis and 0.6% on a monthly basis. Estimates had been for 4% and 0.3% respectively.

An alterative measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons fell sharply, dropping to 8.9% in August from 9.6% in July.

The labor force participation rate was unchanged at 61.7%, still well below the 63.3% in February 2020, the month before the pandemic declaration.

Employment also remained well below pre-Covid levels, with 5.6 million fewer workers holding jobs and the total workforce still smaller by 2.9 million.

Another key Fed metric, the employment-to-population gauge, stood at 58.5%, up one-tenth of a percentage point from July but still well below the 61.1% pre-pandemic level. The measure looks at total jobholders against the working-age population.

August’s numbers have been volatile in past years and often see substantial revisions. They come amid other positive signs for employment.

Weekly jobless filings have fallen to their lowest levels since the early days of the pandemic in March 2020, but a large employment gap remains.

It’s not that there aren’t enough jobs out there: Placement firm Indeed estimates that there are about 10.5 million openings now, easily a record for the U.S. labor market. ZipRecruiter on Friday noted sharp gains in job postings for travel, arts and entertainment and education, generally signaling that those sectors should see strong gains ahead.

Fed officials are watching the jobs numbers closely for clues as to whether they can start easing back some of the policy help they’ve been providing since the pandemic started.

In recent weeks, central bank leaders have expressed optimism about the employment picture but said they would need to see continued strength before changing course. At stake for now is the Fed’s massive monthly bond-buying program, which could start getting scaled back before the end of the year.

However, if the jobs data gets softer, that could prompt Fed officials to wait until 2022 before tapering its purchases. Fed officials have been clear that interest rate hikes will come well after tapering starts.

“I still expect them to taper by year end,” said State Street’s Loh. “Maybe some of the more aggressive conversations about something happening in September are off the table. I think November is still a possibility.”

The Fed meets next on Sept. 21-22.

The hiring blitz at bars, restaurants and hotels came to an abrupt halt in August as more Covid-19 cases and a scarcity of willing workers kept employers from adding to payrolls.

The broad leisure and hospitality sector, which includes restaurants and lodging, added a net of zero jobs last month. That’s a remarkable stop to a sector that had jumped by an average 350,000 per month over the prior six months.

A closer look within the sector shows a loss of 42,000 jobs in food services and drinking places offset by a gain of 36,000 jobs in arts, entertainment and recreation.

The headline numbers from the August jobs report showed the U.S. economy added just 235,000 jobs last month, well short of the 720,000 expected. The unemployment rate fell from 5.4% to 5.2%. CNBC studied the net changes by industry for August jobs based on data contained in the government’s employment report.

The Labor Department noted the flat employment in leisure and hospitality coincided with a drop in consumer confidence, which fell in part due to concerns about rising Covid cases last month due to the delta variant.

Leisure and hospitality added 2.1 million jobs from February through July — half of all U.S. jobs added over that period. The Bureau of Labor Statistics said leisure and hospitality employment is 10% below where it was in February 2020.

The “headline number is obviously disappointing – much lower than expectations – and markets will react. But the interesting question is why the number is so low,” Commonwealth Financial Network chief investment officer Brad McMillian wrote.

“Looking at the unemployment and underemployment numbers, which dropped, as well as the labor force participation rate, it looks to have come from workers electing not to enter the workforce,” he added. “This ties the shortfall to the pandemic, again, rather than to general economic weakness.”

Retail trade, which has lost jobs over several years, shed 28,500 positions in August. Food and beverage stores, as well as building material and garden supply stores, saw net job losses of 23,200 and 13,000, respectively.

Building and garden shops likely saw payrolls decline ahead of the cooler months and a deceleration in Covid-era at-home projects.

On the upside, manufacturers had a decent month with 37,000 new jobs amid strong hiring at transportation equipment makers. Factories that produce cars and car parts saw some of the sector’s strongest numbers, up 24,100.

Transportation and warehousing came out best in August with a gain of 53,200 net payrolls. The Labor Department said warehouses and other storage facilities added 20,200 jobs while air transportation advanced by 11,400.

— CNBC’s Nate Rattner contributed reporting.

U.S. economist Joseph Stiglitz believes now is a good time to rewire the U.S. economy, arguing that “we shouldn’t let a crisis go to waste.”

The former senior vice president and chief economist of the World Bank said on Thursday that the coronavirus pandemic has highlighted how the economic system isn’t working, referencing inequality, the climate crisis and the lack of resilience of the market economy.

Stiglitz said he’s optimistic that many existing problems can be tackled simultaneously, since they’re related.

“You can get a two-for-one,” he told CNBC’s Steve Sedgwick at the annual Ambrosetti Forum on the shores of Lake Como in Italy.

The U.S. should, for example, invest in building “green” infrastructure that creates jobs and helps bring down inequality, Stiglitz said. “Once you put your mind to it, you realize that we can attack two or three of these problems simultaneously,” the 78-year-old said, adding that the U.S. has the labor and the capital.

Stiglitz said it would be “healthy” for the U.S. economy to raise taxes “a little bit” to finance “some of the things we need for the common good.”

In July, 130 countries backed a global minimum corporate tax rate of 15%, and Stiglitz said that move has ended the race to the bottom on taxes, highlighting how the U.S. is considering a 25% rate.   

A successful economy is not defined just by tax rates but also by other factors such as infrastructure and research and development efforts, Stiglitz said.

He said there’s a growing consensus that the U.S. needs to change outdated laws that have been in place for 125 years and address excessive market power across the whole of America. “The concentration of market power has increased enormously in the last 35 years” he said.

Overregulation and overtaxing won’t see the West lose its competitive edge to emerging powers and China, according to Stiglitz. “I’m actually quite confident that this new agenda will actually strengthen us,” he said.

Competition makes market economies more innovative, while monopolies reduce innovation, Stiglitz said. “We’ve seen how the big giants actually squash innovation,” he said.

U.S. companies created far fewer jobs than expected in August as the Covid resurgence coincided with cutbacks in hiring, according to a report Wednesday from payroll services firm ADP.

Private payrolls rose just 374,000 for the month, well below the Dow Jones estimate of 600,000 though above July’s 326,000, which was revised downward slightly from initial 330,000 reading.

Most of the new jobs came from leisure and hospitality, which added 201,000 positions in a somewhat hopeful sign that an industry beset by a labor shortage continues to recover.

Education and health services combined to add 59,000 for the month as hospitals in some parts of the country were swamped with virus cases and schools begin to reopen.

“The delta variant of COVID-19 appears to have dented the job market recovery,” said Mark Zandi, chief economist at Moody’s Analytics, which works with ADP on the report. “Job growth remains strong, but well off the pace of recent months. Job growth remains inextricably tied to the path of the pandemic.”

The apparent letdown comes at a pivotal time.

Following a robust recovery from the shortest but steepest recession in U.S. history, economic data of late has been disappointing, possibly reflecting pullbacks from this summer’s surge of the Covid delta variant. The U.S. has been averaging about 150,000 new cases a day following a burst in July and August.

Markets are awaiting Friday’s nonfarm payrolls report, which is expected to show 720,000 new jobs added and an unemployment rate falling to 5.2%, according to Dow Jones estimates.

Wall Street initially shrugged off the ADP report, with stock market futures still pointing to a higher open. However, major averages were mixed in late-morning trade and government bond yields were little changed.

Differences between job counts

The ADP numbers could be pointing to a softer Labor Department report, though the firm’s count has been an unreliable indicator in 2021.

ADP’s tally averaged a growth of 495,000 jobs per month through July; the Labor report showed an average increase of 617,000 during that period. The two reports also diverged sharply in July, with the official count at 943,000 compared with ADP’s 326,000.

Goldman Sachs said the ADP report “suggests potential downside” for Friday’s Bureau of Labor Statistics number. Goldman already is forecasting below-consensus payroll growth of 600,000.

According to ADP, the weakest job growth for August came in small businesses, which added just 86,000 positions. Companies with 50 to 499 employees led with 149,000, while big business contributed 138,000.

Elsewhere at the sector level, services accounted for 329,000 of the total, with professional and business services growing by 19,000 and trade, transportation and utilities adding 18,000.

Of the 45,000 goods-producing jobs, 30,000 came from construction, 9,000 from natural resources and mining and 6,000 from manufacturing.

Federal Reserve officials are watching the jobs numbers carefully.

Recent statements out of the central bank indicate that it likely will slow the pace of its monthly purchases of bonds so long as job growth continues apace. Officials have been largely optimistic about the employment picture, though they note that about 6 million fewer workers are holding jobs now than before the pandemic.

Signed contracts to purchase previously owned homes fell 1.8% in July from June, according to the National Association of Realtors.

Sky-high home prices have caused affordability to drop dramatically in the last several months. The median price of an existing home was up 18% in July, according to the Realtors. Much of that was due to the fact that there was far more activity on the higher end of the market, which skewed that median higher.

Pending sales are a forward-looking indicator of sales that close in one to two months.

“The market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers,” Realtors chief economist Lawrence Yun said in a release. “That said, inventory is slowly increasing and home shoppers should begin to see more options in the coming months.”

Mortgage rates fell sharply during July, with the average on the popular 30-year fixed starting the month at 3.18% and ending at 2.84%, according to Mortgage News Daily. That drop gave buyers more purchasing power, which likely helped those on the edge of affording today’s high home prices. The lower rates, however, were not enough to really juice the market.

Pending sales were down 8.5% compared with July last year. That annual comparison, though, is an unusual one, because sales spiked so dramatically last summer after the initial shutdown due to the pandemic.

Regionally, the Realtors’ pending sales index fell 6.6% in Northeast month to month and was down 16.9% year over year. In the Midwest it dropped 3.3% for the month and 8.5% from July 2020.

In the South, sales fell 0.9% for the month and were down 6.7% annually. In the West, sales rose 1.9% monthly and were down 5.7% annually.

“Homes listed for sale are still garnering great interest, but the multiple, frenzied offers — sometimes double-digit bids on one property — have dissipated in most regions,” Yun said.

Total housing inventory at the end of July was 1.32 million units, up 7.3% from June’s supply and down 12% from one year earlier (1.5 million). There was a 2.6-month supply of unsold inventory at the July sales pace

Closed sales of existing homes in July, which represent contracts signed in May and June, rose for the second straight month.

Sales of existing homes in July rose 2% from June to a seasonally adjusted, annualized rate of 5.99 million units, according to the National Association of Realtors.

These sales figures are based on closings, so they reflect contracts signed in May and June. Sales were 1.5% higher than July 2020. That is the second straight month of gains after a pullback in the spring.

Sales are likely improving due to rising supply. The inventory of homes at the end of July stood at 1.32 million, down 12% from a year ago, but that is a smaller annual decline than in recent months. At the current sales pace, that represents a 2.6-month supply. A six-month supply is considered a balanced market between buyers and sellers.

Despite the slight increase in supply, demand continued to outpace it, pushing prices to another all-time high.

The median price of an existing home sold in July was $359,900. That is a 17.8% increase compared with July 2020. Some of that price rise is skewed by the types of homes currently selling, and the market is much more active on the higher end. Annual price gains were larger last month, but given the huge spike in the market last summer, comparisons are now going to be smaller.

“The housing sector appears to be settling down,” said Lawrence Yun, chief economist for the Realtors. “The market is less intensely heated as before.”

It may be cooling, but it still appears to be competitive. Homes are spending, on average, just 17 days on the market. First-time buyers represented just 30% of the market, whereas they are usually around 40% historically. Nearly a quarter of all buyers are using all cash, also a higher share than normal.

The latest read on sales of newly built homes from June showed a sharp decline both monthly and annually, according to the U.S. Census. That data set is based on signed contracts, so it is looking at roughly the same activity as the July data on existing homes. Newly built homes come at a price premium to similar-sized existing homes, and builders say they are now seeing even more buyers unable to afford what they would like.

Mortgage rates didn’t move much throughout May and June, when the bulk of these deals were made, but they did fall more sharply in July. That, in addition to increasing supply, could help boost sales at least slightly in the coming months. Mortgage applications to purchase a home, however, continue to run at a far slower pace that a year ago, according to the Mortgage Bankers Association.

“Continued economic recovery is key to maintaining sales momentum, and anything that disrupts progress, such as rising Covid cases, could knock home sales off course,” said Danielle Hale, chief economist at Realtor.com. “Still, with listing price growth beginning to recalibrate in response to shifting supply and demand dynamics, we should see a steady pace of home sales over the next few months, especially if mortgage rates remain low.” 

First-time filings for unemployment insurance hit a pandemic-era low last week, a sign that the jobs market is improving heading into the fall despite worries over the delta Covid variant.

Jobless claims for the week ended Aug. 14 totaled 348,000, the Labor Department reported Thursday. That was below the Dow Jones estimate for 365,000 and a decline of 29,000 from the previous week.

The last time claims were this low was March 14, 2020, just as the Covid-19 pandemic declaration hit and sent the U.S. economy spiraling into its deepest but briefest recession on record.

In the weeks that followed, more than 22 million Americans would be sent to the unemployment line, sending the jobless rate skyrocketing to 14.8%. The jobs market has been on a steady recovery trajectory since then but remains well off its pre-pandemic health.

Stocks were volatile following the news, with the Dow Jones Industrial Average well off its lows for the morning and down just slightly in early trading.

Continuing claims also fell, dropping to 2.82 million on a 79,000 decline from the week before. That data runs a week behind the headline claims number and also represented a new low since the pandemic struck.

The total of those collecting benefits under all programs fell to 11.74 million, a decline of 311,787 for the week ended July 31 and owing mostly to a big drop in those receiving enhanced benefits, which will come to a complete close in September. A year ago, the total under all programs stood at 28.7 million.

A sizable chunk of the decline in claims came from Texas, which fell by 8,311, according to unadjusted data. Illinois also declined 3,577 and Michigan was lower by 2,188.

Overall, the drop could be good news for a jobs market that has seen nonfarm payrolls increase by 2.5 million over the past three months and the unemployment rate fall to 5.4% from 6.3% at the beginning of the year. Thursday’s data reflects the period the Labor Department uses as its survey week for the monthly nonfarm payrolls count.

There remains, however, a large jobs gap, with some 6 million fewer Americans considered employed now than prior to the pandemic. There also were 8.7 million workers looking for jobs in July, though that was well below the 10 million or so job openings in the U.S.

Economists see a multitude of reasons for the inability to get back to full employment. Among them are ongoing fears about the pandemic, workers pressing for higher wages and the enhanced government benefits that have lowered the incentives for taking jobs.

Wages have been increasing in response to the current conditions, with average hourly earnings up 4% year over year in July. Prior to the pandemic, that would have been a record in data going back to March 2007.

A separate report Thursday showed the pace of manufacturing growth in the Philadelphia region slowed in August. The Philadelphia Fed’s manufacturing index declined to 19.4 from 21.9 the month before. The reading represents the percent difference between firms seeing expansion vs. those seeing contraction. The level was below the Dow Jones estimate of 22.

Federal Reserve officials at their July gathering made plans to pull back the pace of their monthly bond purchases likely before the end of the year, meeting minutes released Wednesday indicated.

However, the summary of the July 27-28 Federal Open Market Committee gathering indicated that the central bankers wanted to be clear that the reduction, or tapering, of assets was not a precursor to an imminent rate hike. The minutes noted that “some” members preferred to wait until early in 2022 to start tapering.

“Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year,” the minutes stated, adding that the economy had reached its goal on inflation and was “close to being satisfied” with the progress of job growth.

However, committee members broadly agreed that employment has not met the “substantial further progress” benchmark the Fed has set before it would consider raising rates.

Addressing interest rate concerns, committee members also stressed the need to “reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in the target range for the federal funds rate.”

Fed officials have said repeatedly that tapering will happen first, with interest rate hikes unlikely until the process has been completed and the central bank isn’t growing its balance sheet anymore.

Markets briefly rebounded after the minutes’ release but then turned negative again, with the Dow Jones Industrial Average down more than 150 points.

The FOMC voted at the meeting to keep short-term interest rates anchored near zero while also expressing optimism about the pace of economic growth.

While the message about tapering had been telegraphed, the Fed has a difficult communications job in making sure its strategy is clearly outlined. There are concerns in the market that the Fed might set its tapering pace on a strict course even if the economy sours.

The post-meeting statement painted a generally upbeat look on the economy, but the minutes noted some misgivings.

Officials judged that “uncertainty was quite high” about the outlook, with the Covid-19 delta variant posing one challenge and inflation another. Some members noted “upside risks to inflation,” in particular that conditions Fed officials have labeled as transitory might last longer than anticipated.

Those worried about inflation said tapering should start “relatively soon in light of the risk that the recent high inflation readings could prove to be more persistent than they had anticipated.”

However, the minutes noted substantial differences of opinion, with some members even worried that inflation could go back into a downward drift if Covid cases keep rising and potentially dampening economic growth.

While the market is expecting tapering soon, it still doesn’t see interest rate hikes coming at least for another year or so. Futures contracts tied to the fed’s benchmark interest rate are pricing in about a 50% chance of a rate hike in November 2022 and a 69% chance of an increase the next month.

There also was talk about “elevated valuations” across asset classes, with some members worrying that easy Fed policy was raising prices and threatening financial stability.