US Federal Reserve to initiate stimulus cut in November, Experts Say

Most of the 49 economists in the survey predicted that the central bank will begin tapering off in November.
  • Bloomberg

Policymakers at the U.S. Federal Reserve are expected to announce this week that they will begin to reduce their massive asset-buying program amid heightened concerns about inflation, economists surveyed by Bloomberg said.

Most of the 49 economists in the survey predicted that the US central bank will begin the phase-down in November and end in mid-2022, slowing the current monthly buying pace of $ 120 billion by cutting Treasuries by $ 10 billion a month and mortgage-backed securities $ 5 billion. They are very divided on whether the rise in interest rates will occur in 2022 or early 2023, and a small majority estimate that it will be on the latter date, while they forecast that rates will rise to 1.75% by the end of 2024, a quarter of a point more than in the September survey.

The Federal Open Market Committee (Fomc) will meet for two days starting Tuesday, and on Wednesday at 2 p.m. Washington time, it will issue a monetary policy statement. No quarterly rate or economic forecasts will be published at this meeting. Fed Chairman Jerome Powell will hold a press conference 30 minutes later.

Almost all economists expect the Fomc to announce the reduction at this meeting, which would be in line with Powell’s comment on October 22 that “I think it’s time to cut back on the asset purchase program.” Almost two-thirds expect the slowdown in bond buying to begin this month, with most of the rest expecting a kickoff in December. The committee discussed options for both months at its previous September meeting, according to the minutes of that debate.

The committee’s most contentious decision at the next meeting may be how long the reduction should last.

While most economists expect bond purchases to drop by $ 15 billion each month, in a process that would end in June fines – a separate question in the survey that some of them believe the Fed may decide to accelerate. rhythm. That showed that 35% expect the reduction to be completed in seven months or earlier, compared to 51% who expect it to take eight months.

A quicker end to the stimulus reduction would give policymakers the flexibility to raise interest rates sooner, because Powell and others have said they want to end the reduction before moving on to possible hikes.

Much of the meeting will focus on a review of rising inflation, which Powell has acknowledged has lasted longer than expected. The Fomc can modify the language of its statement to repeat that while inflation will be transitory due to supply chain disruptions, it will persist longer or there may be some factors that are not transitory, according to 54% of economists.

Still, the Committee will almost certainly keep its language that it will not raise interest rates until the labor market meets its target of full employment. While the Fomc uses a variety of indicators to measure that goal, economists say it is likely to suggest a takeoff when the unemployment rate drops to 4%.

Although the Fomc has emphasized that it wants an inclusive definition of maximum employment, according to a smaller number of economists the first increase would occur when the unemployment of black workers stands at 6%.

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