This raises the prospect of an announcement in November that it will hold back. But even if such a decision were delayed until December or January, it wouldn’t matter much to the markets, which have already incorporated a policy change, said Seema Shah, chief strategist at Principal Global Investors, in comments sent by email.
When the pandemic began to wreak havoc on the U.S. economy in early 2020, the Fed stepped in, cutting interest rates close to zero and pledging to buy $ 120 billion worth of treasury securities and mortgage backed each month. These purchases will soon be canceled, it seems, in what is called a “cone”.
It is the Fed’s job to keep prices stable and to achieve as many jobs as possible. In recent months, Powell had said more progress was needed on those fronts until a change in policy was warranted. But now his tone has changed: While the inflation test is already full, the job test is “almost full,” Powell told reporters at Wednesday’s press conference.
“For me, it shouldn’t be a great knockout [September] jobs report, ”Powell added, although other members of the political committee were still hoping for further improvements.
Roadblocks to come
There are still some hurdles that the economy and the market must overcome.
“It is just very important that the debt ceiling be raised so that the United States can pay its bills as they fall due,” said Powell, adding that the damage to the economy and financial markets would be severe if there were any. fault. No one should assume that the Fed could fully protect the economy from such a failure, he added.
And as many economists have started to factor in the Delta effect into their winter forecasts for the economy, the Fed has, too. His projections predict weaker economic growth for 2021 with gross domestic product up 5.9%, compared to the 7% he forecast in June. However, the growth rate for 2022 has been revised upwards to 3.8% from 3.3%.
Spikes in inflation over the summer fueled market sentiment that the Fed would soon rule its easy money policies as soon as possible to keep the economy from overheating.