The Fed said that it will “soon” start tapering its asset purchases, with Powell indicating that it could start in November and end in mid-2022. Powell also reiterated that the central bank will most likely wait until the end of the tapering process before raising interest rates.
1. The FOMC voted unanimously and decided to maintain the target range for its benchmark policy rate at 0-0.25% while continuing its purchases of Treasuries and mortgage-backed securities at a pace of $120 billion per month.
2. Policymakers are now split over liftoff next year, with half seeing at least one hike in 2022. The median projections now also show the federal funds rate at 1% in 2023.
3. Powell said that the central bank will review trading and asset ownership rules for its leaders in a “comprehensive and deliberate” way, after announcing the review last week. Two reserve bank presidents have come under fire recently for their trading activities last year.
4. The press conference ended with Powell saying that the central bank is proactively evaluating whether to issue a digital currency, taking into consideration that many of them are outside of regulatory protection.
5. Stocks added to gains and hit their highs after the release of the policy statement, with the S&P 500 Index rising to 1.2%. Longer-dated Treasuries saw limited moves and remained higher with 10-year yields at 1.31%. Two-year notes dipped, sending yields up about 2 basis points to 0.23%. The dollar fluctuated and had an insignificant change.
6. The important thing to remember is that the tapering of QE is still the Fed working through their level of accommodation, just at a slower pace. In many regards, this is the first step that could potentially lead to raising rates down the road, but the Fed is still being very protective of the economy and the market.
7. Even though the Delta variant may be slowing the recovery, they have seen enough economic recovery for the need of tapering -- the word they used was ‘soon,’ so we can anticipate that to be some time this year.
8. Powell has mentioned that his focus is on tapering the asset purchases, instead of shrinking the balance sheet.
9. In addition to signalling a scale back in upcoming bond-buying, officials also published updated quarterly projections, which showed that the officials are undecided on whether it will be appropriate to begin raising the federal funds rate as soon as next year.
10. The equity market looks to be taking its early cue from the upbeat 2022 growth outlook and lacks a clear break to a 2022 hike.
Fullerton Markets Research Team
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