Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Fed signals bond-buying taper coming 'soon,' rate hike next year

EconomySep 22, 2021 06:57PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: Federal Reserve Chair Jerome Powell testifies during a U.S. House Oversight and Reform Select Subcommittee hearing on the coronavirus crisis, on Capitol Hill in Washington, U.S., June 22, 2021. Graeme Jennings/Pool via REUTERS/File Photo 2/2

By Howard Schneider and Jonnelle Marte

WASHINGTON (Reuters) -The Federal Reserve said on Wednesday it will likely begin reducing its monthly bond purchases as soon as November and signaled interest rate increases may follow more quickly than expected as the U.S. central bank's turn from pandemic crisis policies gains momentum.

The slight hawkish tilt was signaled in a new policy statement and economic projections that showed nine of 18 Fed officials ready to raise interest rates next year in response to inflation that the central bank now expects to run at 4.2% this year, more than double its 2% target rate.

A drawdown of the central bank's $120 billion in monthly bond purchases could begin after the Nov. 2-3 policy meeting as long as U.S. job growth through September is "reasonably strong, Fed Chair Jerome Powell said in a news conference following the central bank's latest two-day session. The U.S. nonfarm payrolls report for September will be released in early October, the last such report before Fed policymakers gather again in November.

"It wouldn't take a knockout or super-strong employment report," to start the "taper" of the bond-buying program, with the process expected to wind down by the middle of next year, Powell said.

That timetable has taken on added significance. The Fed wants its purchases of Treasuries and mortgage-backed securities to end before it starts lifting borrowing costs, and new projections showed officials poised for that to happen in 2022.

The Fed now projects inflation will run above its target for four consecutive years. Even though the overshoot is slight, at 2.2% in 2022 and 2023 and 2.1% in 2024, it has begun to shift views among policymakers who have been divided over whether the biggest risk is the pandemic's ongoing impact on the economy, marked by relatively high joblessness, or the threat of breakout inflation.

For the time being, the Fed still anticipates being able to spur employment while keeping a lid on inflation, which it views as the result of "transitory" forces that will ebb on their own.

Indeed, the interest rate increases are expected to proceed slowly, pushing the Fed's benchmark overnight lending rate to 1% in 2023 and then to 1.8% in 2024 - still considered a loose monetary policy stance that will allow the unemployment rate to fall to its pre-pandemic level of around 3.5%.

Policymakers, however, downgraded their expectations for economic growth this year, with gross domestic product expected to grow 5.9% compared to the 7.0% projected in June, largely as a result of the new wave of coronavirus cases.

Overall, the Fed's statement and projections are "probably a little bit more hawkish than many would have anticipated, basically acknowledging that should the economy continue to grow as we have seen, it would warrant a tapering to occur," said Sam Stovall, chief investment strategist for CFRA Research in New York. "You could say it's a tentative tapering announcement even though they did lower their 2021 GDP forecast."

Powell told reporters financial conditions would remain accommodative even after the Fed stops its asset purchases and emphasized that the decision on the bond-buying program was separate from any actions regarding interest rates.

The Fed on Wednesday held its current target interest rate steady in a range of 0% to 0.25%.

U.S. stocks extended gains after the release of the statement before retreating later in the afternoon, with the S&P 500 index closing up about 1%. U.S. Treasury yields see-sawed, with the yield on the benchmark U.S. 10-year note edging lower.

SLOWING RECOVERY

The Fed's September policy statement had been widely expected to point to the coming end of the bond purchases it has been making to blunt the economic impact of the pandemic.

Fed officials said last December that they would continue purchasing bonds at the current pace until there was "substantial further progress" on the central bank's goals for maximum employment and inflation.

The inflation benchmark has been cleared, Powell said on Wednesday, and the employment standard "all but met."

But it was in their broader economic outlook that Fed policymakers made a less anticipated change.

Their outlook for inflation jumped 0.8 percentage point for 2021 and the expected end-of-year unemployment rate rose over policymakers' previous forecast in June. In turn, two officials brought forward into 2022 their projected timeline for slightly lifting the Fed's benchmark overnight interest rate from the current level, enough to raise the median projection to 0.3% for next year.

The move to lower GDP growth expectations for 2021 reflected concerns that the coronavirus is weighing on the economy. Projected growth for next year was increased from 3.3% to 3.8%, with spending merely shifted into future months when the virus is expected to recede.

"The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID-19 cases has slowed their recovery," the Fed said in its policy statement.

Fed signals bond-buying taper coming 'soon,' rate hike next year
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (19)
Darrell Peterson
Darrell Peterson Sep 23, 2021 1:20AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Party Pooper Powell , last one out turn off the lights .
William Bailey
William Bailey Sep 22, 2021 11:13PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Haaaahooom … The fat man is singing
Millennial Metals
Millennial Metals Sep 22, 2021 10:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Imagine betting against Michael Burry
William Bailey
William Bailey Sep 22, 2021 10:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Burry got it right
Nicholas Volker
Nicholas Volker Sep 22, 2021 10:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You guys gonna burn in HELL
DD lifestyle
DD lifestyle Sep 22, 2021 9:47PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Central banker cerate the inflation for decrease the unemployment rate .....Gold is hedge product of doller when gold prices are raising due to in effectiveness of Monterey policy of centre bank ....same case vice versa
DD lifestyle
DD lifestyle Sep 22, 2021 9:39PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Fed is not interested for strength doller ....They will loose exports competitiveness so ...doller .Hedge assets have more volalitity in comming months ahead
Jon Bal
Jon Bal Sep 22, 2021 8:23PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
that was a nice tap dance when they brought up the trading
Rodolfo Barraco
Rodolfo Barraco Sep 22, 2021 4:58PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
HE NEVER SAID RATE HIKE 2022 STOP MANIPULATING MARKETS AND LYING! he just said bond purchase tapper will be gradual until half of 2022, and for rate much more stringent tests needs to pass more probably for 2023! EXACTLY THE OPPOSITE!
William Bailey
William Bailey Sep 22, 2021 4:58PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Nah, interest rates going up and fast
ZS Beck
ZS Beck Sep 22, 2021 1:45PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
No rate hike till 2058Scale back 10 B in the bond purchase , 110 B left to go … 10B / year …
akljsdf askldf
akljsdf askldf Sep 22, 2021 1:45PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
do it for a few months, and spider drop 2%, taper the taper, then reverse, then expand QE, long inflation YAY
bert prince
bert prince Sep 22, 2021 1:41PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
come on keep subisdizing markets and corporate the wealthy bless you. the others will just pay for the inflation you created
Fosu Abraham
Fosu Abraham Sep 22, 2021 1:24PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
what have done to deserved this.
milena villa escobar
milena villa escobar Sep 22, 2021 12:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Booorrring.  Somebody get me out of this never-ending fed speak nightmare
Millennial Metals
Millennial Metals Sep 22, 2021 11:23AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
When are americans going to stop being weak and fight back against their corrupt private central bank
Show previous replies (3)
Tre Hsi
Tre Hsi Sep 22, 2021 11:23AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
milena villa escobar  they?  who is they?  Is the current Fed Chairman appointed by Trump or not?  If so, why didn't The Donald stop being weak and fight back against the corrupt central bank?
Oluwafisayo Aknlosotu
Oluwafisayo Aknlosotu Sep 22, 2021 11:23AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
It they annouce tampering what will happen to gold or the us dollar
Jokers R Us
Jokers R Us Sep 22, 2021 11:23AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Never. We are a bunch of cowards.
Kenneth Gold
Kenneth Gold Sep 22, 2021 11:23AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The Billionaires Club won't allow the shut down of the Fed. They will unleash the Military-Industrial Complex on their opponents.
William Bailey
William Bailey Sep 22, 2021 11:23AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Kenneth Gold thats the game
Me comment
Me comment Sep 22, 2021 11:10AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
No major change to taper guidance will come out. Not with the sluggish employment, sales and manufacturing inventory numbers.
James Andrews
James Andrews Sep 22, 2021 7:00AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Whenever markets have so long to digest something, the effect of it is never as good or bad as expected. Only sudden or underestimated things seem to be true catalysts, everything else is priced in efficiently.
joee dwiyanto
joee dwiyanto Sep 22, 2021 6:36AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
finally...usd weak or strong???
perplexed76 .
perplexed76 . Sep 22, 2021 6:36AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
optimism - weaker dollar, fear - stronger dollar
Ayumastura PinkLady
Ayumastura PinkLady Sep 22, 2021 5:20AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
when? today at 2pm? or tomorrow?
JS am
JS am Sep 22, 2021 5:20AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Read the article maybe?
jason xx
jason xx Sep 22, 2021 5:08AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I guess nobody cares JPOW is using his portfolio as a list of bonds the government must buy?
William Bailey
William Bailey Sep 22, 2021 1:39AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
A joke . Fed been selling 4 times buying rate on reverse repo markets . Debt can be paid down . Sell the fing treasuries and pay debt … screw raising the debt ceiling
Shrey Singhal
Shrey Singhal Sep 22, 2021 1:39AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
wht does it mean is it bad for mrkt or good for mrkt
Jokers R Us
Jokers R Us Sep 22, 2021 1:15AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Stop
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email