Federal Reserve Renewal
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The Federal Reserve will send a clearer signal next week about plans to phase out pandemic stimuli as early as November as U.S. consumers continue to focus on economic recovery. It is expected.
The Federal Open Market Committee needs to convene a two-day meeting on Tuesday to uncover the fate of last year’s huge bond-buying program to stabilize financial markets and strengthen the economy.
In detail, it comes with a new set of forecasts for growth, unemployment and inflation, and most importantly, personal expectations when interest rates could start rising from today’s near-zero levels.
Federal Reserve Board Chairman Jay Powell, Said He believes that if the economy continues to evolve as expected last month, the move to reduce or “taper” these purchases by the end of the year may be “appropriate.” The message was repeated in early September by one of his closest seniors, John Williams, president of the Central Bank’s New York branch. Surprisingly weak August job report.
The Federal Reserve will buy $ 120 billion in US Treasuries and government mortgage-backed securities each month until it sees an average of 2% inflation and “substantial further progress” towards maximum employment. I promised.
Powell last month showed that the first of these goals had already been achieved. Consumer price inflation in the United States has peaked in some sectors and remains close to its 13-year high, with signs that it is beginning to expand in others. He also mentioned “clear progress” in the recovery of the labor market.
His more “hawkish” colleagues Insisted The economy has already laid a sufficient foundation to begin reducing support, suggesting an announcement as early as November.
Grant Thornton’s Chief Economist, Dian Swonk, said: “Now I need a warning and I need a roadmap.”
The November move will only give the FRB another employment report to evaluate before making a decision, and December will give the central bank time to analyze employment growth in both September and October. Wait until. “Now it takes a lot of bad things to get them off track,” said Michael Ferroli, chief economist at JP Morgan, but another “ridiculous” report could postpone the initial timeline. He said he had sex.
Economists anticipate such a pivot, and the statement released after the meeting on Wednesday has been updated to reflect progress towards these two tapered thresholds. I am. Barbara Reinhardt, head of asset allocation at Voya Financial, also “resolutely” hopes Powell will not taper off and the timing of lower asset purchases will not signal future interest rate hikes. doing.
Ajay Rajadhyaksha, Head of Macro Research at Barclays, said: “Now you are on the other side.”
The process is next year as the Federal Reserve Board of Governors predicts a pace of $ 25 to $ 30 billion per meeting as the taper, which he believes will begin officially in December, begins. It will end in the second quarter. Others offer a slower pullback of $ 15 billion.
The conference will also bring new forecasts on the economic outlook and hotly anticipated updates to the “dot plot” of individual interest rate forecasts, including the 2024 forecast for the first time. Latest release in June Shown At least two interest rates will rise in 2023, at a faster pace than expected, shook Financial market.
The September update could bring yet another surprise, even though Powell warned that the dot plot should be taken “with a grain of salt.”
Roberto Perli, a former Fed staff member and head of global policy research at Cornerstone Macro, now warns of significant “upward risks” that may represent a more aggressive approach to reducing financial support. bottom.
“The point is a big unknown,” he said. “We know they are not commitments, but the market is still paying a lot of attention to them.”
Stephen English at Standard Chartered Bank speculates that enough Fed officials can raise the lift-off timeline, as the Dot Plot shows a rise in interest rates in 2022. It was 3% in 2021 and 2.1% in 2022.
The English added that the growth trajectory of GDP could be delayed, but any downgrade would reflect supply-side problems rather than chilling demand.Latest retail sales report Indicated Despite concerns about new viruses, consumers are spending time with healthy clips.
Morgan Stanley economists predict that there will be no price increase in 2022, but it will increase further in the coming years. The other will be added in 2023, with a total of three, followed by three more in 2024.
“It’s finally becoming clearer about Covid and the economy is starting to settle into a good ditch, so what pace the Fed is expecting from a hiking perspective,” said Tom Porcelli, chief economist in the United States. I’m going to see it. ” At RBC Capital Markets. “We will start seeing patterns appear.”
The Federal Reserve Board is expected to provide clues about the stimulating tapering timeline.
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