After the market turmoil of the past two days, the challenge for the Fed will be to appear reassured, while acknowledging that it is preparing to take the first important steps out of the accommodative policies it has put in act to combat the pandemic.
The Federal Reserve will release its monetary policy statement, along with the economic outlook and interest rate outlook, announced quarterly at the end of its two-day meeting on Wednesday afternoon.
The US central bank is expected to indicate that it is preparing to announce that it will begin reducing its $ 120 billion in monthly purchases of Treasury and mortgage-backed securities.
The Federal Reserve is expected to signal a reduction in asset purchases by the end of the year, also examining expectations that could reveal greater domestic pressure to raise interest rates in 2022.
The FOMC will almost certainly keep rates close to zero after the Fed meeting and will continue to buy bonds at the current rate of $ 120 billion per month.
Seven of June’s 18 officials began suggesting a rate hike in 2022, although the median estimate saw rates suspended until 2023.
With inflation expectations likely to rise at the current meeting, more policy makers could join the rate hike camp in 2022.
“The message to reduce the bond buying program has been sent very well, so people won’t be surprised,” Roberto Burley, partner of Cornerstone Macro LLC and former Fed economist, told Bloomberg.
Instead, the White House will analyze the characterization of the economy by the Fed president, whose four-year period ends in February. The overwhelming majority of economists expect President Joe Biden to keep him at the helm of the Fed, even though some progressives would like the White House to choose someone else. Biden’s decision is expected this fall.
This week’s market turmoil caused by concerns about China’s real estate sector will likely be too late to affect the tone of the Fed meeting, even if the phasing out of the asset purchase program will be impacted by the economy.
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