This is how the US economy is doing pending tapering. Intesa Sanpaolo Report
Facts, numbers and scenarios on the US economy according to the economists of Intesa Sanpaolo
The meeting of the FOMC * on 21-22 September will be a watershed for the Fed's monetary policy. The Committee should officially open the discussion on the reduction of purchases of securities, without however giving precise indications on how and when to taper .
According to our forecast, the turnaround for the purchase program is expected to be discussed in September, announced in detail in November, with a start scheduled for December.
The Fed was the first central bank to launch a massive bond purchase program to counter the economic effects of the pandemic, but it will be among the latest to announce a turnaround in QE-2020. In fact, the Bank of England, the Bank of China, the Reserve Bank of Australia and the European Central Bank have already announced, and in some cases started, tapering. The meeting of the FOMC these days should officially open the discussion regarding the turnaround on purchases, without however giving rise to precise announcements. The minutes of the September meeting, due out in mid-October, are expected to give indications on the guidelines for the changes to the purchasing program (currently 120 billion per month), pending a formal announcement with details at the November meeting and a probable implementation starting from December.
In the press conference, President Powell is expected to confirm that the progress required for reducing purchases has already been achieved on the inflation front, while for maximum employment it is "very good", but still requires some confirmation. Powell should underline the clear difference between the conditions for tapering and those for the turnaround on rates: for the latter, times are still a long way off and not directly linked to the purchase program. The expected progress of the macro scenario within a couple of months should be considered sufficient to begin tapering. However, the progress "towards" maximum employment does not imply the achievement of the objective, which is required for the change in rates. The fed funds path will require much tighter conditions and should not include increases for a relatively prolonged period. In essence, tapering is not, in itself, a hawkish turnaround for rates, although it is obviously a necessary (though not sufficient) condition to pave the way for a new round of monetary policy.
For this, it will be very important to update the economic projections, which will also include 2024.
Compared to the macroeconomic scenario published in June, there could be several changes: for 2021, downward revision of growth, upward revision of unemployment and inflation; for 2022, more growth and inflation. Overall, however, the valuation is expected to remain favorable, with growth, inflation and unemployment converging towards longer-term trends from 2023 onwards. For rates, there are risks of a median hike for both 2022 and 2023, from firm rates and two hikes, respectively, indicated in June. At the moment, (our) Intesa Sanpaolo forecast is that the median for 2022 remains in line with unchanged rates, with some upside risk in 2023 and indications of at least two hikes in 2024.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/come-va-leconomia-usa-in-attesa-del-tapering-report-intesa-sanpaolo/ on Tue, 21 Sep 2021 10:51:05 +0000.