The Fed is expected to provide clues on the timetable for stimulus cutbacks

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Federal Reserve Update

As American consumers continue to promote economic recovery, Fed officials are expected to send a clearer signal next week that they will begin to phase out plans to phase out stimulus measures during the pandemic as early as November.

The policy-making Federal Open Market Committee held a two-day meeting on Tuesday. The meeting should reveal the fate of its large-scale bond purchase plan to stabilize financial markets and support the economy last year.

The details will be accompanied by a series of new forecasts for growth, unemployment and inflation, and most importantly, personal expectations of when interest rates may start to rise from today’s near zero levels.

Federal Reserve Chairman Jay Powell, Said Last month he believed that if the economy continues to develop as expected, it may be “appropriate” to reduce or “shrink” these purchases before the end of the year.One of his closest senior colleague John Williams, President of the New York branch of the Central Bank, reiterated this message in early September, even after Surprisingly weak August employment report.

The Fed has pledged to buy $120 billion in US Treasury bonds and agency mortgage-backed securities every month until it sees “substantial further progress” in achieving an average inflation rate of 2% and maximizing employment.

Powell said last month that the first of these goals has been achieved. The growth rate of US consumer prices is still hovering near a 13-year high, and there are signs that certain industries are beginning to peak and expand in others. He also pointed to “significant progress” in the recovery of the labor market.

His more “hawkish” colleagues have debate The economy has gained a firm foothold and can begin to reduce support, indicating that it will be announced as early as November.

“They said they would notify us a lot in advance,” said Grant Thornton chief economist Diane Swank. “We need a warning now, we need a road map.”

The November move will only allow the Fed to evaluate an employment report before making a decision, and wait until December to give the central bank time to analyze employment growth in September and October. Michael Feroli, chief economist at JPMorgan Chase, said that another “useless” report might postpone the early timetable, but he said that “some very bad things are needed now to get them off track.”

Economists expect that this shift is coming, and the statement to be issued after the meeting on Wednesday has been updated to reflect the progress made so far towards these two declining thresholds. Barbara Reinhardt, director of asset allocation at Voya Financial, also expects Powell to be “resolutely” that the reduction will not tighten, and that reducing the timing of asset purchases will not signal future interest rate hikes.

Ajay Rajadhyaksha, Head of Macro Research at Barclays, added: “US$120 billion a month is just a huge sum. They were announced in the absolute throes of the world falling apart last year.” “Now, you are on the other side.”

Once the Fed starts to scale down (which he believes will be officially launched in December), Rajadhyaksha predicts that the size of each meeting will reach 25 to 30 billion US dollars, so the process will end in the second quarter of next year. Others suggested a slower pullback of $15 billion.

The conference will also bring new forecasts on the economic outlook and the eagerly awaited update of the “dot map” of personal interest rate forecasts, which will include the 2024 forecast for the first time. Latest release in June Indicated At least two rate hikes in 2023, faster than expected, and Bumps Financial market.

The September update may bring another surprise, although Powell warned that the dot map should be “reserved.”

Roberto Perli, a former Fed staff member and head of global policy research at Cornerstone Macro, warned that this time there are significant “upside risks”, which may indicate a more aggressive approach to reducing monetary support.

“These points are a big unknown,” he said. “We know they are not promises, but the market is still very concerned about them.”

Steven Englander of Standard Chartered speculates that enough Fed officials may advance their interest rate hike schedule so that the dot chart shows a 2022 rate hike. This may be accompanied by a substantial upward revision of the inflation forecast. The June inflation forecast is 3% in 2021 and 2.1% in 2022.

Englander added that the trajectory of GDP growth may decline, but any downgrade will reflect supply-side issues, not a cooling in demand.Latest retail sales report show Despite the recurrence of virus concerns, consumer spending remains healthy.

Economists at Morgan Stanley predict that prices will not increase in 2022, but will be more taken into account in subsequent years.The other will be added in 2023 for a total of three, and then three more in 2024

Tom Porcelli, the chief economist of the United States, said: “As we become more clear about Covid and the economy begins to enter a healthy state, we will finally see the Fed’s expectations of raising interest rates. What is the pace of development.” In the Royal Bank of Canada Capital Markets. “We will start to see a pattern emerge.”

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