The Expected Scenario of The Federal Reserve

This week the market is looking for the Fed’s monetary policy meeting and perhaps the arrival of tapering, or at least an announcement of the schedule and start date.

In the bank’s last meeting in September, Fed Chair Jerome Powell said tapering in November is high on the agenda and also set a general end-date to that process, mid-2022. Inflation has met the threshold of “substantial further progress” set by officials and employment has “all but met” that goal, according to Powell.

Expectations point to the fact that at the Federal Reserve’s meeting on Tuesday and Wednesday, the start of the Fed monthly purchase reduction of $120,000 million, between Treasuries and mortgage-backed securities, will be determined.

The Fed will likely stick to the script from the Minutes, announcing a total reduction of $15 billion every month – $10 billion in government bonds and $5 billion in Mortgage-Based securities.

The program to taper will be gradual, and it is estimated that it may last about seven or six months. When it expires at the end of the second quarter of 2022, the Fed will have to raise interest rates.

“The Fed will raise its benchmark from a range of zero to 0.25% soon after it stops tapering its massive asset-purchase program.”

“A second increase will follow in November 2022 and the central bank will then raise rates two times a year after that.”

“The main reason for their new forecast was they now expect inflation to prove more stubborn than they previously thought.”

“Expect consumer price inflation outside of food and energy costs to still be above 4% when the taper ends.”

citing comments from Goldman Sachs