FOMC to announce start of QE withdrawal

Wednesday brings to the financial markets a highly important meeting. It is the awaited Fed meeting since May or June.

When the Federal Reserve wraps up its meeting, the central bank is expected to announce that it will begin to wind down one of its biggest and most unprecedented market interventions undertaken in the wake of the pandemic.

Wall Street will be listening to hear what Fed Chair Jerome Powell has to say about the stubbornly persistent inflation that is beginning to create interest rate anxiety.

Market observers said Powell might revisit how he characterizes the current level of inflation, which he has described as transitory for several months. Will the word ‘transitory’ be used frequently? Investors are eying Powell’s language, the Fed has acknowledged this could persist longer and at higher levels than they originally expected.

Atlanta Fed president Raphael Bostic went even further, calling the word “transitory” a “dirty word” in a virtual speech to the Peterson Institute for International Economics on Tuesday.

Bostic said he expected that the supply chain disruptions driving up prices will linger, saying, “By this definition, then, the forces are not transitory.”

Conversely, since this bout of inflation is supply chain-driven, Powell is likely to maintain the position that it doesn’t represent a long-term threat to economic growth.

Inflation is staying as a power in the Fed’s long-awaited taper. Since June 2020, the central bank has been purchasing $120 billion in bonds — $80 billion in Treasuries and $40 billion in mortgage-backed securities, every month to add liquidity and keep the financial system working efficiently.