More and more market experts are voicing the opinion that the Fed is highly likely to taper bond purchases at the end of the summer of 2021. They are confident that this period will be a turning point for the Fed's current monetary policy.
On May 19, the Federal Reserve published the FOMC meeting minutes. Central bankers voted unanimously to maintain the interest rate near zero and continue purchasing at least $120 billion of Treasury bonds and mortgage-backed securities monthly. “We will continue to provide the economy the support that it needs for as long as it takes,” Fed Chairman Jerome Powell said. However, he also admitted that the regulator would adjust its bond purchases program if needed.
Therefore, economists have been trying to game out the possible timeline all year. As the watchdog continues to assure market participants that it will not change the policy in the near future, it is extremely difficult to forecast when exactly Fed officials will start signaling a move to taper bond purchases.
Many experts assume that tapering may come sooner than expected, namely by the end of the summer. Currency strategists at Oxford Economics believe that the Fed will officially announce the end of the bond-buying program in August this year. Thus, in 2022, it will begin to reduce bond purchases.
The chief economist at SGH, Macro Advisors, thinks that the recent FOMC minutes signal a change in the Fed's economic outlook. He expects a shift in the current policy of the regulator. He sees the Jackson Hole conference as a potential event to more formally flesh out the case for tapering. So, at the December or January meeting, the Fed is highly likely to make an official announcement about the reduction of bond purchases.
Notably, investors took notice of some changes in the statements of Fed officials after the majority of bankers reported that they did not plan to reduce the pace of bonds purchased as part of a move to keep interest rates low. However, the current economic outlook may somehow influence the central bank's previous stance on monetary policy.
Recently, experts have recorded a quicker expansion. At the same time, many analysts expect an explosive rise in inflation. The successful COVID-19 vaccination campaign and the easing of quarantine measures also gave a boost to the economy. Hence, few have doubts about its steady and robust revival in the near future.
