High Impact Events – September 2021 Week 3

There were four high impact events in September 2021 Week 3

The four events were all from the FOMC.

The Federal Reserve is wrestling with how to continue getting Americans back to work after the historic COVID-19-induced downturn while guarding against a persistent surge in inflation.

It’s a delicate balance.

Citing an outlook for faster inflation but slower economic growth than it previously forecast, the Federal Reserve on Wednesday signaled plans to begin tapering its bond buying stimulus by year’s end and possibly raise interest rates in 2022, a year earlier than it had anticipated.  

The central bank is buying $120 billion a month in Treasury bonds and mortgage-backed securities to hold down long-term rates. It reiterated it will continue the purchases at that pace “until substantial further progress has been made toward” the Fed’s goals of full employment and 2% inflation. 

For a second straight meeting, the Fed said the economy “has made progress toward these goals.”

And in its statement after a two-day meeting, Fed officials said, “If progress continues broadly as expected (toward the Fed’s employment and inflation goals), the Committee judges that a moderation in the pace of asset purchases may soon be warranted.”

At a news conference, Fed Chair Jerome Powell said the central bank could well announce that it will start cutting back the market-friendly bond purchases at its next meeting in early November.

Ian Shepherdson, chief economist of Pantheon Macroeconomics, expects the Fed to start scaling back the purchases in November, unless Congress fails to resolve its standoff over raising the government’s debt ceiling, or borrowing authority. Under that scenario, Powell said he expects the purchases to conclude by the middle of next year.

The Fed launched the bond buying at the start of the pandemic to prevent Treasury and mortgage markets from freezing up amid investor panic, and then to push down long-term interest rates.

“Now we’re in a situation where they still have a use but their usefulness is much less, as a tool,” Powell said.

The Fed left its key short-term rate near zero but projected it could modestly raise it next year to about 0.3% and it will end 2023 at about 1%, above its June forecast of 0.5% to 0.75%, according to officials’ median estimate.

Nine Fed of 18 Fed policymakers now predict at least one rate hike next year, up from seven in June, a split that indicates the Fed could raise the rate by about half of the quarter point increase that is typical. And the officials now foresee three hikes in 2023, up from two in June, and two more in 2024.


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