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Later this year, the U.S. Federal Reserve will begin to curtail its $120-billion monthly purchases of government and mortgage-backed bonds, according to minutes of the Fed’s Open Market Committee on 27 and 28 July.
“Most participants noted that, provided the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year,” the minutes stated, as reported by The Wall Street Journal.
U.S. equities markets slid sharply on the news, announced last Wednesday, but recovered most of the loss by week’s end.
The Fed still sees high inflation as transitory, but also ranks high inflation as a greater probability than a low rate of price increases, the minutes noted.
Last December, the Fed said it would adjust policy when inflation averaged 2 percent over time and the labor market made “substantial further progress” consistent with a goal of full employment.
Although Fed officials agreed that the inflation target had been reached, not all were ready to acknowledge that the job market had made “substantial” progress.
However, the Fed met just days before the U.S. labor department reported 943,000 new jobs added to the economy in June, with the jobless rate ticking down that month from 5.9 percent to 5.4.
Tapering of the monthly purchases likely will begin within three months, the WSJ reported, with some Fed officials urging the program’s end by next July.
“I do expect we’re going to be at the point where we’ve seen substantial further progress…later this year,” Charles Evans, president of the Federal Reserve Bank of Chicago, in a conversation with reporters last week as reported by the WSJ.
At the Fed’s meeting in September, the job market should be showing enough stable progress to meet the Fed’s criteria for buying fewer bonds, Eric Rosengren, the Boston Fed’s president, said in a WSJ interview earlier this month.
“That would set up some time this fall a possible tapering that is dependent on the Delta variant and other variants not slowing down the labor market substantially,” he said, adding that continued strong economic growth would mean “we’re done with tapering…toward the middle of next year.”
Not all Fed officials are ready to endorse that timetable.
Fed governor Lael Brainard said she wants to see September’s jobs report, due in early October, before deciding whether to cut back bond purchases; Mary Daly, president of the San Francisco Fed, said the economy is becoming strong enough to allow “beginning to taper this year, or maybe early next.”
Fed officials have said that ending the bond purchases is a prerequisite for raising interest rates; ending them by mid-summer next year would enable the Fed to raise interest rates sooner than its most recent official forecast of 2023. (See “When Will the Fed End Cheap Money Policy?,” Trends Journal, 27 July 2021.)
However, the central bank is “a ways away from considering raising interest rates,” Fed chair Jerome Powell said in a 28 July post-meeting news conference.
“It’s not something that’s on our radar screen right now,” he emphasized.
TREND FORECAST: The Fed is unlikely to begin tapering bond purchases in the next three months or any time this year.
While there is optimism that the FDA approval of the COVID jab will spur economic growth, again, as we have detailed, it will only be temporary at best.
The combination of fears of a resurgent virus in the autumn and winter months in major nations will reverse economic growth, jitter stock markets and delay Fed tapering—especially because Fed officials know stock markets are riding entirely on Fed support and will slide once tapering begins.
And as we have noted, when Wall Street crashes, Main Street will wake up to the reality of the phony economy that has been artificially propped up by the central Banksters and Washington.