Federal Reserve Leaves Rates and QE Unchanged Says If Progress Continues as Expected, a Taper May Soon Be Warranted

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    Helmholtz Watson

    The Federal Reserve kept rates unchanged at their…


    Helmholtz Watson

    Powell opening statement:


    A gradual taper that concludes around the middle of next year is likely to be appropriate
    Job gains have been very strong but in August they slowed down markedly, particularly in leisure and hospitality
    Virus fears weighing on employment growth but should diminish over time
    Inflation is elevated and will likely remain so for months before moderating
    Supply bottlenecks have been larger and longer lasting than anticipated
    Supply bottlenecks will abate and inflation should fall back towards goals
    Indications of longer-term inflation expectations still consistent with longer-run goals
    The early comments are generally “on the one hand…. on the other hand.”

    Helmholtz Watson


    There’s very broad support for the taper timeline at the FOMC
    We’re going to be well-away from satisfying the liftoff test when we being the taper
    There is a lot of room for improvement in the labor market

    Helmholtz Watson

    [size=5][b]More from Feds Evans:
    Burst of higher inflation now will give way to lower numbers ahead; watching expectations will be key
    Supply shocks are a big part of current high inflation readings
    There’s no way to sugarcoat the way higher prices are affecting people
    Supply shocks are driving up inflation now.
    when assessing average inflation, need to also look at expectations and the fact that supply shock is driving up inflation readings now
    let’s be patient see how supply shocks work their way through and if inflation expectations move up
    uncomfortable with 2% to 2.5% inflation
    believes supply constraints will ease next year
    since tapering of asset purchases start late this year or January, and and middle of next year or the fall
    if inflation gets up to 2.6% or 3% that would be an area when would think don’t need accommodative policy, should realign to something more neutral

    Helmholtz Watson

    Cleveland Fed President Mester

    Expects inflation above 2% next year and the year after
    She sees inflation risks to the upside
    If you see long run inflation expectations move up that is a sign monetary policy is too accommodative but right now we don’t see that
    Expects inflation will start to come down as supply side issues fade
    Repeats that she expects taper to begin in November

    Helmholtz Watson

    Highlights of the FOMC minutes:

    Four mentions of transitory inflation, including “staff continued to expect that this year’s rise in inflation would prove to be transitory”
    8 mentions of tapering, including an outline of the path

    The illustrative tapering path was designed to be simple to communicate and entailed a gradual reduction in the pace of net asset purchases that, if begun later this year, would lead the Federal Reserve to end purchases around the middle of next year. The path featured monthly reductions in the pace of asset purchases, by $10 billion in the case of Treasury securities and $5 billion in the case of agency mortgage-backed securities (MBS). Participants generally commented that the illustrative path provided a straightforward and appropriate template that policymakers might follow, and a couple of participants observed that giving advance notice to the general public of a plan along these lines may reduce the risk of an adverse market reaction to a moderation in asset purchases. Participants noted that, in keeping with the outcome-based standard for initiating a tapering of asset purchases, the Committee could adjust the pace of the moderation of its purchases if economic developments were to differ substantially from what they expected. Several participants indicated that they preferred to proceed with a more rapid moderation of purchases than described in the illustrative examples.


    Powel on a BIS panel

    [b]We are on track to begin our taper
    Inflation is well above target
    It would be premature to raise rates[/b]

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