WILL FED CUT BOND PURCHASES EARLY NEXT YEAR?

The U.S. Federal Reserve will begin to pare back its $120-billion-a-month bond purchasing program in the first quarter of next year, according to a Bloomberg poll of 51 economists.
A slim majority thinks the Fed will taper off its $40-billion monthly purchases of mortgage-backed securities faster than its purchase of government and corporate bonds.
Some Fed officials have advocated shrinking the central bank’s presence in the mortgage market to cool the home-buying craze that has pushed prices to record levels (see related story in this issue) but Fed chair Jerome Powell and others have not embraced the idea.
The Fed will increase its benchmark interest rate by a quarter point two times by the end of 2023 and three more times in 2024, according to the poll.
President Joe Biden will nominate Powell to a second term as Fed chair when Powell’s term ends in February if Powell is willing, 80 percent of the economists think, a slightly higher proportion than in June’s survey.
The Fed will signal its plan to taper bond purchases either at its Jackson Hole retreat next month or at the September meeting of its Open Market Committee, 75 percent of economists polled predicted.
The tapering will extend over 10 to 12 months, the economists think, which would end the adjustment in time for a rate hike in 2023.
TREND FORECAST: The poll’s results reflect what we have said for months: inflation will force the Fed to raise interest rates sooner and faster than its officials’ public pronouncements would have us believe. However, with the fear of the Delta variant spreading and more COVID War 2.0 mandates being imposed upon the population, should these measures escalate and persist, the economy will dramatically slow down and the Fed will stall its plan to raise rates.