Addressing the media following a two-day Federal Open Market Committee meeting, Federal Reserve chairman Jerome Powell said moderation in the pace of asset purchases may soon be warranted – hinting that a call could be made at the next meeting.
But Mr Powell also left room for a longer wait, if need be, stressing that tapering does not indicate a rate lift.
“The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test,” Mr Powell said.
The Fed’s clear goal to taper without triggering a significant steepening of the yield curve triggered confidence in investors, sending stocks rallying.
Seema Shah, chief strategist at Principal Global Investors, believes Mr Powell’s message was “tantalisingly vague”.
“A moderation in the pace of bond buying coming soon doesn’t clear up if we are looking at November, December or even January for the start of tapering – but then does it really matter?” Ms Shah said.
“The market is already pricing in tapering now and have promptly turned its attention to the date of eventual rate lift-off and the pace of rate hikes which, if anything, is a little more modest than markets had feared.”
The FOMC maintained the target range for the federal funds rate at 0 to 0.25 per cent in a unanimous vote.
However, Mr Powell revealed that FOMC participants are now evenly split on whether conditions for a gradual lift in the federal funds rate could be met as soon as next year.
“Half of FOMC participants forecast that these favorable economic conditions will be fulfilled by the end of next year; as a result, the median projection for the appropriate level of the federal funds rate lies slightly above the effective lower bound in 2022,” said Mr Powell.
But, while underlining that “no one [knows] with any certainty where the economy will be a year or more from now”, the general consensus is a gradual pace of policy firming that would leave the level of the federal funds rate below estimates of its longer-run level through 2024.
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
