FOMC meeting recap: Powell projects a November taper announcement

Fed Chairman Powell is clearly leaning toward a taper announcement at the central bank’s next meeting in November…
As we noted in our FOMC preview report on Monday, the Federal Reserve System was never likely to form any immediate changes to monetary policy at today’s meeting, which was before fears of Chinese property developer Evergrande collapsing under the load of its massive debt load reached critical mass in the week .

So it certainly wasn’t a surprise that Jerome Powell and company left interest rates and asset purchases unchanged at today’s meeting, but we certainly did get an elusive taper “hint.” In it’s statement, the financial institution noted that, “if progress continues broadly needless to say , the Committee judges that a moderation within the pace of asset purchases may soon be warranted.”

In a phrasing even the notoriously opaque Alan Greenspan would admire, Jerome Powell and company managed to satisfy the market’s expectations with a nod toward normalizing monetary policy within the near future… without necessarily committing to starting the method at its next meeting in November.

(…at least, within the official statement – more below!)

Beyond that there have been three other key aspects of the meeting for hints about how monetary policy will evolve from here:

1) The monetary policy statement

Beyond the aforementioned taper hint, there was just one noteworthy tweak to the Fed’s monetary policy statement: The committee inserted a nod to the impact of COVID-19 cases slowing the recovery in certain sectors. Needless to mention , this minor update wasn’t a meaningful market mover.

2) The summary of economic projections (SEP)

Thankfully, the accompanying update to the FOMC’s quarterly economic projections was a touch more interesting. The closely-scrutinized “dot plot” of rate of interest projections showed a good split between Fed officials (9) who see rate of interest liftoff in 2022 and people who see it later than that (9, with 8 of these projecting the primary rate of interest hike in 2023).

Separately, the median Fed official also increased his or her projection within the following ways:

Real GDP growth now projected lower in 2021, higher in 2022 and moderately higher in 2023
Unemployment now projected higher in 2021 and lower in both 2022 and 2023
Core PCE inflation now projected higher in 2021, 2022, and 2023
On balance, these tweaks point to expectations for a US economic recovery that’s posied to play out over multiple years, instead of continuing at a breakneck pace for just 12-18 months.

3) Chairman Jerome Powell’s news conference

Fed Chairman Powell remains speaking as we attend press, but the first highlights from his news conference clearly suggest that he’s leaning toward November taper announcement:

VERY BROAD FOMC SUPPORT ON TIMING, PACE OF TAPER
TAPER ENDING AROUND MID-2022 could also be APPROPRIATE
ASSET BUYS STILL HAVE USE, BUT TIME to start TAPER
IF ECONOMY PROGRESSES needless to say , MAY MOVE AT NEXT MEETING
Reading between the lines, these comments suggest that Fed may are within a vote or two of starting the taper process at this month’s meeting, a more hawkish development than many were anticipating.

See my colleague Joe Perry’s upcoming report for analysis of how these developments are impacting markets!

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