Minutes from the Federal Open Market Committee’s September meeting provide new details about the committee’s thinking, and how quickly it might withdraw its support for mortgages and government bonds.

At the outset of the coronavirus pandemic, the Federal Reserve started increasing its holdings mortgage-backed securities by $40 billion a month, and has also been adding $80 billion a month to its long-term Treasury holdings.

Those asset purchases helped bring mortgage rates to record lows, as increased demand for mortgage-backed securities meant investors — the ultimate source of funding for most home loans — would accept lower yields.

While making it cheaper to borrow, the Federal Reserve hoped to help prevent an economic crash during the height of the pandemic. Unfortunately with inflation now running hotter than some would prefer, members of the Federal Reserve monetary policy comittee think it may be time to scale those purchases back.

Minutes from the Fed’s September meeting show that if the economic recovery remains “broadly on track,” there’s general agreement among committee members that “a gradual tapering process that concluded around the middle of next year would likely be appropriate.”

If the committee members agree that it is now the time to taper the process could commence with the monthly purchase calendar beginning in mid-November or mid-December as stated by the meeting minutes.

At the September meeting, committee members also came closer to agreeing on the mechanics of tapering. There’s been some speculation that the Fed might prioritize steeper reductions in either mortgage-backed securities or Treasurys.

An “illustrative path” proposed by Fed staff members would taper purchases proportionately over eight months, trimming purchases of mortgage-backed securities by $5 billion a month and Treasurys by $10 billion a month.

If it is decided to start tapering in December, the purchases aimed at increasing the holdings of mortgage-backed securities and Treasuries would come to an end in July, although the Fed would continue to maintain its balance sheet by replacing maturing bonds. 

No final decision has been made on when or how fast to taper, Fed staff members said the scenario discussed at September’s meeting was designed to be “simple to communicate,” and committee members generally agreed that it provided “a straightforward and appropriate template” that they might follow.

“Giving advance notice to the general public of a plan along these lines may reduce the risk of an adverse market reaction” to tapering, two committee members noted.

Board member Michelle Bowman spoke at an event and expressed her support for gradual tapering concluding in mid-2022

She stated “In my view, our asset purchases were an important part of our response to the economic effects of the pandemic, but they have essentially served their purpose,” Bowman said. “I am mindful that the remaining benefits to the economy from our asset purchases are now likely outweighed by the potential costs.”

Bowman said she was concerned that the Federal Reserve’s asset purchases “could now be contributing to valuation pressures, especially in housing and equity markets, or that maintaining a highly accommodative monetary policy stance at this stage of the economic expansion may pose risks to the stability of longer-term inflation expectations.”

But the minutes of the September meeting revealed that several committee members “preferred to proceed with a more rapid moderation of purchases.”

This includes St. Louis Federal Reserve President James Bullard, who told CNBC this week that he’d like to see tapering start in November, and be done the end of the first quarter of 2022.

Although Bullard has long been a proponent of “quantitative easing,” he says he now favors tapering quickly so the Fed can start raising short-term rates to fight inflation, if needed. Federal Reserve Chairman Jerome Powell has said the Fed won’t start raising the short-term federal funds rate — which it cut to 0 percent at the outset of the pandemic — until it’s done tapering.