July 26, 2021 — Federal Reserve Meeting this Week


Fed Reserve heads into their set monthly meeting this week and they will address how to roll back their easy money policies.  The economy has improved much faster and stronger than they anticipated six months ago, putting into question the timeline of bond buybacks and the timing on changes in the Fed funds rate.  Fed Chair Jerome Powell will discuss when to slow their monthly purchases of $80 billion in treasury securities and $40 billion of mortgage bonds, and how quickly to reduce them.

Their proposal to curtail buybacks will lead straight to interest rates. Fed officials have said they will not raise interest rates from zero until they are done with tapering asset purchases.  There have been noises about ending purchases in October 2022, allowing rates to rise if inflation is higher than anticipated.

The Fed has goals of sustained inflation at 2 percent and a robust employment scenario, but they believe they are not there yet. We are expecting this week’s Fed meeting to put forth a plan that will be further detailed at their annual August symposium in Jackson Hole.  Currently, Fed officials are split on the possible timing of an initial rate increase, with 13 of 18 members looking at the end of 2023, and seven expecting rates to start moving by the end of 2022.