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Fed Signals Bond Taper This Year; Path to Liftoff in Rates Heats Up

EconomySep 22, 2021 03:32PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com - The Federal Reserve kept interest rates unchanged Wednesday, and said "a moderation" in bond purchasing would be warranted on further economic progress.

The Federal Open Market Committee left its benchmark rate unchanged in the range of 0% to 0.25%.

The committee indicated, however, it would begin cutting its $120 billion monthly bond purchases this year.

“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the Fed said in a statement.

Fed chair Jerome Powell later signaled the taper could get underway in November, and end in mid-2022.  “Participants generally view, so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate,” Powell said in a press conference that followed the monetary policy statement. 

The economic progress has also persuaded some Fed members to bring forward their projections on an interest rate hikes, with members now evenly split on whether to raise rates next year.

Nine Fed officials are now backing a hike in 2022, up from seven in the June meeting. 

The Fed hiked its interest-rate outlook in 2023 to 1% from previous projections of 0.6% in June, the Fed’s Summary of Economic Projections showed. The Fed’s projections for 2024, estimate the central bank’s benchmark rate reaching 1.8% by the end of that year.

The start of tapering is set to get underway against a softer economic backdrop, with the latest projections indicating slower growth and higher inflation ahead.

The economy is expected to grow by 5.9% in 2021, down from previous estimates of 7.0%, while the forecast for 3.3% growth in 2022 was raised to 3.8%. For 2023, the Fed sees growth of 2.5%, up from 2.4% previously.

The pace of inflation is forecast to improve to 4.2% in 2021, and 2.2% in 2022, compared with prior estimates of 3.4% and 2.1% respectively. Inflation expectations for 2023 was kept at 2.2%.

The Fed has been laying out the carpet for a tapering announcement for months, after acknowledging the recent economic progress toward its taper threshold of “substantial further progress.” 

Fed Chair Jerome Powell said last month the pace of the recovery “has exceeded expectations,” and stressed that there was still a way to go to restore the job market to pre-pandemic levels.

On the labor market, the Fed sees the unemployment rate 4.8% in 2021, up from 4.5% previously, while the rate was kept at 3.8% and 3.5% for 2022 and 2023, respectively.

"The Fed gave the promised advance notice today that a reduction in its bond purchases is imminent. This could then be decided as soon as at the November meeting," Commerzbank (DE:CBKG) said in a note.

Fed Signals Bond Taper This Year; Path to Liftoff in Rates Heats Up
 

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Comments (33)
Alina khan
alina47 Sep 22, 2021 10:38PM ET
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I thought it will be the boosted hight up today
Millennial Metals
Millennial Metals Sep 22, 2021 10:31PM ET
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Imagine betting against Michael Burry
Nathan Weed
Nathan Weed Sep 22, 2021 8:29PM ET
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let this be my official prediction for future reference. if the fed does raise rates, they will only raise them one time. after that it's right back to QE infinity
Charles Boon
Charles Boon Sep 22, 2021 6:05PM ET
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Fed owned by private banks, and its serves their interest.
Allatra Yiveh
AllatraYiveh Sep 22, 2021 4:42PM ET
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FED once had the ability to raise interest rates, but now FED can't even think about raising interest rates, FED devised a new way to control market without really doing anything and without scaring about raising interest rates: the bond taper. Which is just how l.a.m.e it is.
Nathan Weed
Nathan Weed Sep 22, 2021 4:42PM ET
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absolutely true. Welcome to the world of QE infinity
jemin An
jemin An Sep 22, 2021 4:07PM ET
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U.S needs new chair in federal reserves, who has responsible for upcoming caios of properties bubble collapse.
jemin An
jemin An Sep 22, 2021 3:59PM ET
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F.R doesn't see property price bubble, the caractor of house price will never be stable even interest rates up, it'll just goes up till bubble bursted.
Meru Pet
Meru Pet Sep 22, 2021 3:59PM ET
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now people know that it doesn't go up forever. so no...
peter neal
peter neal Sep 22, 2021 3:59PM ET
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They will have to go negative when the debt ceiling isn't extended and the Government defaults. So expect helicopter money and record highs in Equities . They will never raise rates because they can't and everyone who follows this scam knows it.
Olga Haldemann
Olga Haldemann Sep 22, 2021 3:59PM ET
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This is what I can't understand, how much this debt ceiling actually matters? Because if it did matter, they were supposed to be default since September 4. The drbt ceiling is a volunteer thing. They decided there should be one, but they never respected it. And it us simply the first time when they don't respect it and don't tell through which mechanism:) What should USA do, declare itself a default? :) But why? Their ceiling, their own business. The world was taking it seriously and anticipated Usd to almost stop existing :) in August, and Gold prices to skyrocket like a dogecoin after breakfast with Musk:), but non of this is even close to be as we thought. This debt ceiling doesn't mean what the world thinks it means.
Me comment
Me comment Sep 22, 2021 3:56PM ET
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Interesting article but still total speculation on when tapering would start as Powell on said if economic progress continues tapering would be in order. Powell gave no start time or end time. The article author is just speculation
Montgomery Lindeen
Montgomery Lindeen Sep 22, 2021 3:49PM ET
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“Let’s taper” November comes around High inflation and no tampering…
William Bailey
William Bailey Sep 22, 2021 3:48PM ET
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Sounds like “Substantial Further BS”
Olga Haldemann
Olga Haldemann Sep 22, 2021 3:48PM ET
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Sounds this way. And if investors receive this same message, they may decide to postpone this *up to 20% correction" to up to November :) And will go on with further substantial progress as long as the working day lasts and stick their dollars in francs, probably :)
New Jazenevd
New Jazenevd Sep 22, 2021 3:48PM ET
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It does not matter for the market whether and when the tapering starts. It does matter for the market when money printing stops or subsides at least.
Antonio Velardo
Antonio Velardo Sep 22, 2021 3:48PM ET
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Lot of short sellers’ posts here.
dav lo
dav lo Sep 22, 2021 3:47PM ET
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add it coward, u drag the whole world index drop, but you are at ever high. f
Heine Pedersen
Heine Pedersen Sep 22, 2021 3:40PM ET
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"Signals".. that's all US Fed is doing. Some might call it manipulation.. Quite pathetic to be honest
jemin An
jemin An Sep 22, 2021 3:40PM ET
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Lots of beautiful words, but no actions.
Montgomery Lindeen
Montgomery Lindeen Sep 22, 2021 3:40PM ET
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That’s the Feds 101 right there
jemin An
jemin An Sep 22, 2021 3:40PM ET
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Unmanaged House bubble will catch the future U.S economy. F.R should do it's obligation.
Millennial Metals
Millennial Metals Sep 22, 2021 3:18PM ET
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There will never be a taper
Jo Pa
Jo Pa Sep 22, 2021 3:16PM ET
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They need to keep the market artificially propped up until at least midterms, to make Biden look good.
John Healy
John Healy Sep 22, 2021 3:16PM ET
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RIP capitalism. Adam Smith must be turning over in his grave with a great big “I told you so” from Andrew Jackson. This debt slave economy is a quater-to-quarter fiscal and monetary punch line.
Heine Pedersen
Heine Pedersen Sep 22, 2021 3:15PM ET
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Anyways.. ECB has already started slowing down bond buy backs.
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Sep 22, 2021 3:02PM ET
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Dr. Jerome Bubble is clearly saying, crash the market even before I taper so my taper will not look so bad because market already crashed. my taper will look easy on you guys
Edward Chong
Edward Chong Sep 22, 2021 3:02PM ET
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i really admire u. always wrong.
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Sep 22, 2021 2:59PM ET
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Dr. Bubble administered with taper laxative, now he will deliver big lumpy chunky droppings in stocks.
Jokers R Us
Jokers R Us Sep 22, 2021 2:55PM ET
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As the old saying goes, "If you could've, you would've."
Oluwafisayo Aknlosotu
Oluwafisayo Aknlosotu Sep 22, 2021 2:51PM ET
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So they are not tampering yet
harsh visharia
harsh visharia Sep 22, 2021 2:49PM ET
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$120 billion a month, will USA turn out to be another Zimbabwe? USD is just losing it value against inflation. it is the Rich people becoming richer through stock market boom. Frustration is beyond words now.
 
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