As the Federal Reserve concludes its two-day meeting on Wednesday, market participants are watching to see how — and when — the central bank will start winding down one of the biggest monetary policy experiments in at least a decade.
One key facet of this was the Fed’s commitment at the start of the pandemic to purchase an open-ended amount of U.S. Treasury and mortgage bonds, which has provided much-needed stimulus through the worst of the Covid-19 recession.
“There are two big things that markets will be focused on,” said Bill Merz, senior portfolio strategist and head of fixed income research at U.S. Bank Wealth Management. The first, he said, will be “to what degree Powell sets the stage for tapering and how forceful that language is, and any details he provides, especially around pace.”
Consumers are seeing prices go up for gas, food, rent and restaurants — and they feel inflation is a real thing, whether the data shows it or not.
Federal Reserve Chairman Jerome Powell’s messaging on this has been excruciatingly calibrated to avoid spooking markets: Powell is eager to avoid a repeat of the so-called “taper tantrum” of 2013, when Wall Street was surprised by the Fed’s decision to curtail its Great Recession-era bond-buying, triggering a market drop.
As such, the conversation around scaling back these purchases is one that consists of many steps and will unfold over a period of months, market observers say. “They took the path of hinting at it, and delicately talking about it, and the markets have really adjusted to that,” said Dan North, senior economist at Euler Hermes North America.
“The market is fully anticipating that tapering begins this year,” Merz said. “[Powell] setting the stage for a November announcement is consensus at this point, and we think that's a high probability."
Wall Street expects the winding-down process itself to take place over six to 12 months, said Craig Fehr, principal and investment strategist at Edward Jones. “A shorter timeline might raise the anxiety level a little bit, but I think the Fed will try to take a blanched approach,” he said.
Investors also are keeping a keen eye on the central bank’s outlook for the future path of interest rates. Rising rates would signal policymakers’ confidence in the economy’s recovery, but could also indicate an imperative to hedge against rising inflation. “Tapering is easing off the accelerator. Rate hikes are tapping the brakes,” Fehr said.
Materials released at the conclusion of this Fed meeting include the Federal Open Market Committee’s Summary of Economic Projections. The most widely scrutinized aspect of this analysis is the so-called “dot plot,” a graph depicting policymakers’ expectations of where the benchmark Federal Funds Rate will be throughout the next couple of years and over the longer term.
Although not a mandate or an official prediction, investment professionals interpret it as a gauge of the policy-making body’s collective sentiment. Worry over the economic impact of the delta variant and market jitters about the showdown in Washington, D.C., over the debt ceiling have injected a note of uncertainty that Fed officials and investors alike must navigate.
Despite these potential dark clouds on the horizon, recent iterations of the dot plot indicate that, while the overall trajectory remains dovish — with rates hovering at a very low level for quite some time — there have been a growing number of outliers, signaling that a greater number of Fed officials have expectations that deviate from the party line.
“It’s interesting to think about what counts as expectations, and interesting to think about what constitutes quote-unquote consensus,” said Tom Martin, senior portfolio manager at Globalt Investments. “It looks pretty much like there isn’t an expectation of a change in the dot plot for 2022. The following two years could be a different story, though,” he said. “The consensus is that if there is a change, it will be on the hawkish side.”
While not in the majority, an increasing number of Fed officials have expressed a more hawkish viewpoint — an outlook that has evolved over the summer as the labor market began to show signs of improvement and inflationary metrics rose. For these policymakers, worry about pockets of inflation becoming entrenched overshadows concern that paring policy accommodation will weaken the economy.
Economists point out that one of the trickiest things about inflation is that it can be fueled by sentiment and expectations more than actual macroeconomic data.
“For consumers, they know what they see and they know that they're seeing prices go up — they see gas and they see food and they see rent and they see restaurants,” Martin said. “The feeling is that inflation is a real thing and will probably last longer than the Fed is saying. It’s in the Fed's best interest to talk down those risks.”
"What" - Google News
September 22, 2021 at 09:19PM
https://ift.tt/3lIEvng
What to watch for at the Fed's latest meeting - NBC News
"What" - Google News
https://ift.tt/3aVokM1
https://ift.tt/2Wij67R
Bagikan Berita Ini
0 Response to "What to watch for at the Fed's latest meeting - NBC News"
Post a Comment