US Monetary Policy
The US Federal Reserve’s (Fed’s) September 21–22 Federal Open Market Committee (FOMC) meeting and accompanying statement, followed by Fed Chair Jerome Powell’s press conference, finally gave investors some much-needed clarity around the potential start date and pace of Fed tapering.
Essentially, the FOMC indicated that the Fed expects to begin winding down its large-scale asset-purchase program in November 2021—sooner than most market participants had anticipated—and could then complete the tapering process as early as mid-2022. (However, the Fed of course retains flexibility to postpone or slow tapering in response to evolving inflationary and other economic or market conditions). Importantly, regarding short-term interest rates, Chair Powell seems to have expressly de-linked tapering from the timing of when the Fed may begin to raise the federal funds rate. In other words, just because tapering commences does not necessarily mean that rate hikes will happen immediately (or even soon) thereafter.
Naturally, fixed-income market participants will be keeping a close eye on Fed-related developments, both its words and its actions, in the coming weeks and months.