The Fed says it could begin a ‘slow tapping process’ by mid-November

According to the minutes of the September meeting of the central bank released on Wednesday, Federal Reserve officials may begin to reduce the extraordinary support they are giving to the economy in mid-November.

The summary of the meeting indicates that members feel that the Fed has moved closer to achieving its economic goals and may soon begin to normalize policy by slowing its monthly asset purchases.

In a process known as tapping, the Fed will reduce bond purchases by $ 120 billion a month. The minutes indicate that the Fed will likely start cutting 10 10 billion a month in Treasuries and 5 5 billion a month in mortgage-backed securities. The Fed is currently buying at least $ 80 billion in Treasury and $ 40 billion in MBS.

The target date of completion of the purchase should not be any obstacle in the middle of 2022.

The minutes noted that “participants generally assessed it, provided that the economic recovery is largely on track, a gradual tapping process that ends in the middle of next year would probably be appropriate.”

“Participants noted that if the next meeting decides to start a tapping purchase, the tapping process could begin with a monthly purchase calendar starting in mid-November or mid-December.”

The Fed meets next November 2-3. The tapping process, which began in November, is faster than some Fed observers have indicated, with most expecting a liftoff in December.

The minutes said members’ estimates were “consistent with a gradual decline in net purchases made in July of next year.”

At the policy-making session in September, the committee unanimously voted to keep the central bank’s benchmark short-term orrow rate from zero to 0.25%.

The committee also released a summary of its economic expectations, including estimates of GDP growth, inflation and unemployment. Members have lowered their GDP estimates for this year but raised their outlook for inflation, indicating that they expect unemployment to be lower than previously estimated.

In the “dot plot” of individual members’ expectations for interest rates, the committee indicates that it may start raising interest rates by 2022. According to the CME FedWatch tool, markets are currently pricing the first rate hike next September. Following the release of the minutes, traders increased their chances of growth in September from 622% to 5%.

Officials, however, insisted that a sound decision should not be seen as a means of raising interest rates.

However, some members at the meeting expressed concern that the current inflationary pressures may be longer lasting than they expected. Traders are setting prices at 46% probability of two rate increases in 2022.

“Most participants viewed the risks of inflation in reverse because of concerns that supply disruptions and labor shortages could be long-lasting and have a larger or more lasting impact on prices and wages than they currently estimate.”

The document noted that “some participants” said there could be some “negative risk” to inflation because the long-term cause that kept prices under control was again effective. The majority of Fed officials maintained that the current price rise was temporary and was due to declining supply chain disruptions and other factors.

Inflationary pressures continue, though, with a reading on Wednesday showing that consumer prices rose 5.4% compared to last year, the fastest pace in decades.

This is breaking news. Please check back here for updates.

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