September 22, 2021

FOMC Pre-Review: Is It Time For The Fed To Announce ‘Tapering’?

 The US Federal Reserve (Fed) is likely to begin paving the way for reducing its monthly asset purchases (tapering) at this week’s FOMC policy meeting.

With 3 more Fed monetary policy announcements before the end of the year, Chairman Jerome Powell needs to give a clear signal to make cuts if they want to give the market time to prepare.

The only thing market players want to know from the Fed is whether they will give an exact date for the cuts to begin.

Over the past few months, investors have been increasingly optimistic that the central bank will draw up plans to start reducing asset purchases in September.

However, at its last meeting in July, the Fed said the criteria for announcing tapering had yet to be met causing the market to begin to doubt whether it would be announced in the near future.

Next in August in Jackson Hole, Powell said the central bank will likely start it before the end of the year, but gave an indication that this reduction will not lead to a direct interest rate hike.

Weak US employment and inflation data readings last month also added to market skepticism to get a clearer indication from the central bank on the timeline for the implementation of the cuts.

Aside from policy announcements, investors will also be shown economic projections and dot plots that the Fed uses to signal the outlook for interest rates.