Fed expected to stay cautious on US tapering

posted September 19, 2021 at 06:55 pm
by  AFP
WASHINGTON—With the United States on the upswing from the COVID-19 pandemic, the Federal Reserve is expected to weigh in next week on whether the economy is healthy enough to begin withdrawing stimulus measures credited with aiding the revival.

But the two-day meeting of the central bank’s policy-setting Federal Open Market Committee (FOMC) beginning Tuesday ultimately may be a static event, like many others in recent months.

Analysts do not expect the Fed to immediately begin the much-expected slowing of its massive bond purchases, and while the committee will release updated economic forecasts, few big changes are expected from previous estimates released three months ago.

The FOMC “likes to prepare markets for any major change,” said Joe Brusuelas, chief economist at RSM US.  

When he addresses the press after the meeting, Fed Chair Jerome Powell “may choose the opportunity to signal that the tapering is coming, which would likely be a November announcement with a December start,” the economist said.

The Fed took several emergency measures starting in March 2020, acting quickly as the pandemic caused the world’s largest economy to collapse.

In addition to slashing the benchmark lending rate to zero, the Fed began buying massive quantities of bonds and other securities to ease lending conditions and ensure the financial system would not seize up.

Powell has said the bank could begin drawing back on those purchases by the end of the year, but experts expect them to take their time.

“I think the tapering train left the station last meeting already,” said Roberto Perli, founding partner and head of global policy research at Cornerstone Macro, who also expects the bank to begin slowing its purchases in the last two months of the year.

The FOMC will convene as the economy sends mixed signals about two of the central bank’s top priorities: employment and prices.

The United States added a disappointing 235,000 new jobs last month, though there were better employment gains in prior months as Americans returned to positions lost to COVID-19 business closures or found new ones.

“The Fed is never swayed by just one report, they look at the trend and the trend is still pretty good,” Perli said.  

“I think they’ll read the data and say we’re still very much on a safe track. I don’t think the data changes anything in their mind.”

The rebounding economy has spurred a sharp uptick in inflation this year, but in August, the consumer price index grew at a slower pace than in prior months.

Topics: United States , COVID-19 pandemic , Federal Reserve
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