The Fed will try to soothe markets Wednesday, while preparing investors for end to bond buying
The Fed will release a policy statement along with the economic and interest rate forecasts it issues quarterly at the end of its two-day meeting Wednesday afternoon. Fed Chairman Jerome Powell is expected to brief the media at 2:30 p.m. ET. The central bank is widely expected to indicate it is getting ready to announce it will start paring back its $120 billion in monthly purchases of Treasurys and mortgage-backed securities.
“Does the last couple of days’ price action in markets or China have an influence on their thinking? My guess is it’s going to enter the discussion, but I still think they’re going to end up in the same place we were going to end up in,” Rieder said.
He expects the Fed to cut back the purchases at a pace of $10 billion Treasurys and $5 billion mortgage-backed securities a month, once it starts the taper.
While the Fed’s move away from asset purchases may be well broadcast, strategists say its interest rate forecast may be a wild card for markets. Tied closely to that will be the Fed’s expectations for inflation. In June, it forecast 3.4% for the personal consumption expenditures inflation index this year, before falling back to 2.1% in 2022.
“If we just see two or three members change their minds that could be a hawkish surprise. There is no chance that [Fed officials] will take the dots off, so the risk is that there are more dots that appear in 2022 and 2023, and the market starts thinking the rate hiking cycle commences next year,” Bahuguna said, noting that would be a “hawkish” message that would be negative for stocks, and it could result in higher interest rates at the short end of the Treasury curve.
Rieder does not expect the Fed to change its interest rate forecast for 2022, though it will reveal its forecast for 2024 for the first time. Those longer term forecasts often change, he said.
Market pros also expect Powell to be asked about recent reports that Fed officials owned and traded securities. An in-depth look by CNBC at officials’ financial disclosures found three who last year held assets of the same type the Fed itself was buying, including Powell, who held municipal bonds. Boston Fed President Eric Rosengren invested in REITs and Dallas Fed President Rob Kaplan owned corporate bonds. The trades appear to be in compliance with Fed rules, and the Fed is conducting a review.
Reference: CNBC
Thai
Eng