According to the minutes of the Fed’s September meeting released on Wednesday, Fed officials may begin to reduce the extraordinary help they provide to the economy before mid-November.
The minutes of the meeting indicated that members believed that the Fed was close to achieving its economic goals and could soon begin to normalize policy by reducing the pace of monthly asset purchases.
In a process known as tapering, the Fed will slowly reduce its monthly bond purchases by $120 billion. The minutes of the meeting indicate that the Fed may first cut US Treasury bonds by US$10 billion and US$5 billion in mortgage-backed securities each month.
If there is no interruption, the target date to end the purchase will be mid-2022.
The minutes of the meeting pointed out that “the participants generally believe that if the economic recovery is basically on track, then the gradual reduction process that ends around the middle of next year may be appropriate.”
The summary said: “Participants pointed out that if they decide to start reducing purchases at the next meeting, they can start to reduce purchases from the monthly purchase calendar starting in mid-November or mid-December.”
At the decision-making meeting, the committee unanimously voted to maintain the central bank’s benchmark short-term borrowing rate at zero to 0.25%. At the same time, it was decided to keep the monthly asset purchases at at least 120 billion U.S. dollars.
The committee also released a summary of its economic expectations, including forecasts for GDP growth, inflation and unemployment. Members lowered their GDP forecasts for this year, but raised their inflation expectations and stated that they expected the unemployment rate to be lower than earlier estimates.
In the “dot plot” of individual members’ expectations for interest rates, the committee stated that it may start raising interest rates as early as 2022. According to the CME FedWatch tool, the market is currently digesting the first interest rate hike in September next year.
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