The Daily Update: Taper Time, Almost

Yesterday the FOMC left rates unchanged and did not announce a taper of asset purchases, yet. The statement noted that ‘the economy has made progress toward these goals. If progress continues broadly as expected the Committee judges that a moderation in the pace of asset purchases may soon be warranted’. Powell said a ‘decent’ employment report is all that's needed before slowing asset purchases between the next meeting in November and the middle of 2022, while half of FOMC members now favour hiking rates by the end next year. ‘My own view would be that the substantial further progress test for employment is all but met’, Powell told reporters. ‘For inflation, we appear to have achieved more than significant progress, substantial further progress’. A November start ‘will put us to complete our taper somewhere around the middle of next year, which seems appropriate’ Powell said.

As for the other members, Powell said many on the committee felt the test had already been met, whilst others wanted to see more progress. ‘We will work it out as we go. I don't personally need to see a very strong employment report, but I like to see a decent employment report.’ On inflation the projection is now to increase 3.7% this year, compared with the 3% forecast the last time members gave their expectations. Officials now see inflation at 2.3% in 2022, compared with the previous projection of 2.1%, and 2.2% in 2023, 0.1% higher than the June forecast. For GDP the forecast is for 5.9% growth this year, compared with the 7% forecast in June. However, 2022 growth is now set at 3.8%, compared with 3.3% previously, and 2.5% in 2023, again up 0.1% from earlier estimates.

Have a good day.