Fed statement will be reviewed for latest signals on reduction schedule
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The Federal Reserve is expected to keep its main policy rate at its lowest levels while beginning to outline its plans in more detail to begin scaling back its massive asset purchase program, as the US economic recovery progresses.
The U.S. central bank’s Federal Open Market Committee will issue its final statement Wednesday at 2 p.m. EST, followed by a press conference by President Jay Powell.
Economists are anticipating clear signals on the fate of the $ 120 billion bond purchase program, which the Fed has pledged to keep in place until it sees “further substantial progress” on its policies. inflation targets of 2% on average and maximum employment.
Fed officials, including Powell, have said the inflation threshold has been reached, given the surge in consumer prices in the United States this year, but many agree that there is still some way to go in the recovery of the labor market.
The press release is expected to be updated to indicate that the economy is moving towards the Fed’s dual target, paving the way for a cut or “cut” in its purchases of treasury bills and mortgage-backed securities. ‘agencies starting this year.
Some believe the announcement could come in November, especially if September’s employment data is much stronger than August’s lackluster report. Others say a move in December is more likely.
The Fed will also release an updated dot plot of individual interest rate projections on Wednesday, which will show whether officials are adjusting their timeline for take-off from current levels near zero. The last press release in June indicated at least two interest rate hikes in 2023, which were much faster than market participants expected and resulted in strong gyrations in the US government bond market.
Minor adjustments could result in major changes to the September dot plot, including an interest rate hike potentially slated for as early as 2022 or one added in 2023, to bring the total to three. It will also include a 2024 forecast for the first time.
New projections on growth, inflation and unemployment are also expected. In June, the median FOMC participant predicted gross domestic product growth of 7 percent this year, with the unemployment rate stabilizing at 4.5 percent.
Core inflation is expected to be 3% this year and fall to 2.1% in 2022. Economists forecast a sharp upward revision of inflation forecasts to incorporate the larger jump seen over the summer .
The Fed meeting comes at a delicate time for financial markets, which have suffered the biggest liquidation in months this week, amid concerns over potential contagion from the liquidity crunch crippling China’s Evergrande, the world’s largest developer. indebted to the world.