The Federal Reserve would end the stimulus party in 2021

September 12, 2021 – 7:28 p.m.

Public comments from Fed officials before the central bank began its pre-meeting shutdown period showed that they have not been disturbed by concerns about the delta variant, which slowed the pace of hiring last month. , at the same time clinging to President Jerome Powell’s August 27 message that the reduction could begin later this year. The Fed’s silence period began at midnight last Friday in Washington.

“I don’t think the August employment report has changed my mind,” Cleveland Fed Chair Loretta Mester told reporters. “I would feel very comfortable with us starting this year and reducing purchases during the first half of next year.” New York Fed Chairman John Williams and Gov. Michelle Bowman also said reducing purchases could be appropriate this year.

Also read: How likely is it that the Federal Reserve will make decisions promptly?

The Federal Open Market Committee (FOMC) will meet from 21 to 22 September and could indicate a gradual reduction in bond purchases at the early November meeting, while retaining the flexibility to delay until December if the economy does not behave as well as expected.

“The right base case is still for the Fed to make the decision to cut back in November,” Evercore ISI central bank strategy chief Krishna Guha wrote in a note to clients. He expects language from the Fed meeting to “tilt to narrow in November, but not close in November,” because a weak employment report in September could push for a delay until December.

The resurgence of coronavirus cases and hospitalizations in the United States has slowed down some economic activity, including hiring. The slowdown has led some Fed advocates of an early cut to review their proposals or say they are carefully watching what happens in the economy before making a final decision.

“I will be watching closely how the economy develops between now and our September 22 meeting,” Dallas Fed Chairman Robert Kaplan said last Wednesday at a virtual event. “I don’t see a fundamental change in prospects; if I get to the meeting and keep thinking like that, I’d advocate for us to announce a plan to adjust those purchases at the September meeting and start soon after, maybe in October.”

no hurry

While Kaplan is one of the toughest members of the FOMC when it comes to cutting central bank bond purchases by $ 120 billion a month, some colleagues who thought the same no longer put so much pressure.

Atlanta Fed Chairman Raphael Bostic, who a few weeks ago said the economy was “very close” to meeting central bank conditions to begin reducing purchases, told Dow this week Jones who does not expect the decision to come to the September meeting.

Rising virus cases and weakening economic data indicate that more time will be needed before the Fed can make a final decision on reducing the stimulus, Bostic said, although he continues to see the start of the stimulus. reduction this year.

Also read: Recovery of the labor market in the US .: not as good as you would like

Although the recent outbreak of coronavirus cases has hampered some parts of the economy, many Federal Reserve officials have argued that it will not actually cause a contraction, as businesses and individuals have become more adept at live with these outbreaks.

Not everyone is convinced that the Federal Reserve will reduce bond purchases in 2021.

“The reduction is off the table this month, and whether the Fed will make an announcement before the end of the year depends on the strength of employment, which is being slowed by a growing labor shortage and the spread of the delta variant, “Paul Ashworth, chief economist for North America at Capital Economics, wrote in a note.