We anticipate that the central bank will take advantage of this opportunity to announce a reduction in asset purchases. More specifically, we believe the Fed will begin lowering its purchases of Treasury securities and mortgage-backed securities (MBS) by $10 billion and $5 billion per month, respectively, beginning in December.
At such a rate, the Fed would have completed its purchases of Treasuries and MBS by the end of June 2022. If the FOMC takes a pass on a taper announcement, a Dec. 15th announcement appears all but certain unless the economy catastrophically collapses between now and then.
According to Goldman Sachs economists, inflation will compel the Federal Reserve to raise interest rates next July, a year earlier than originally anticipated.
In a report to clients late Friday, economists led by Jan Hatzius predicted that the Fed would raise its base rate from zero to 0.25% soon after ending its mammoth asset-purchase program. A second increase will occur in November 2022, and the central bank will then boost rates twice a year after that, according to the statement.
Bank Of America
According to Bank of America, Federal Reserve Chair Jerome Powell may fail to persuade the market on Wednesday that the scheduled announcement on decreasing bond purchases does not imply that interest rate hikes are near, strengthening the dollar.
Despite Powell's best efforts, the market is unlikely to separate the timing of future rate increases from tapering, especially if there is a "discernible upgrade" to his assessment of inflation risks and a discussion of a potentially more rapid taper schedule that would bring forward a rate liftoff, according to BofA analysts. "We anticipate that a ratcheting up of Fed expectations will serve as a source of USD-positive event risk."
Previous Meeting Minutes
Key takeaways from Fed Minutes participants include: Tapering could begin in mid-November or mid-December.
Participants reaffirmed that the committee's standard for substantial further progress regarding its asset purchases was distinct from the criteria given in its forward guidance on the Federal Funds Rate.
Participants largely agreed that, as long as the economic recovery stayed on pace, a gradual tapering procedure ending around the middle of next year would be acceptable. Some participants emphasized that economic conditions were likely to warrant keeping the rate at or near its lower level for the foreseeable future.
Other Comments From Fed Members
Fed’s Harker said on Oct. 14th “I wouldn’t anticipate any interest rate raises until late 2022 or early 2023, except if the inflation picture changes greatly.”
On October 1st, Fed’s Mester also said that she sees an interest-rate liftoff next year.