Here are the Fed slaloms between tapering and lift-off
How and why the Fed continues in the "balancing act". The analysis by Richard Flax, Chief Investment Officer Moneyfarm
Yesterday, Fed Chairman Powell and his colleagues from the FOMC successfully continued their "balancing act".
The FOMC Statement did not make any changes to the numbers – rates remained unchanged, as expected.
The Fed continues to be open to a slowdown in the bond purchase plan towards the end of this year.
Once again Powell marked the distinction between the so-called "tapering" (therefore the slowdown and subsequently the stop of the purchase of bonds by the Fed) and the "lift-off" (ie the increase in interest rates).
If the Fed remains true to its unofficial plan, tapering should end around mid-2023.
When it comes to interest rates, all eyes are on the so-called “dot plot”, the interest rate forecasts of individual Fed members. The following table provides a summary.
The expectation according to the median rate increased slightly for 2022 – in practice only one member changed his opinion – and slightly more for 2023.
We can safely say that these results included in the analysts' pre-meeting expectations and perhaps a little less in the expectations of observers in favor of a more restrictive monetary policy.
The FOMC also introduced a projection for Fed Funds rates in 2024 – 1.8% – suggesting that even three years from now, real (i.e. inflation-adjusted) interest rates will still be negative.
In short, the direction seems clear enough, even if the Fed will not make too many firm commitments. In the short term, the market may focus on how quickly the Fed will reduce its bond purchases and how soon after it will start raising rates. But a reference rate below inflation in 2024 is hardly the sign of a tight monetary policy.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/ecco-gli-slalom-della-fed-fra-tapering-e-lift-off/ on Thu, 23 Sep 2021 07:56:32 +0000.