By Yasin Ebrahim
Investing.com – Federal Reserve policymakers said the central bank could taper its monthly bond purchases in mid-November or mid-December, according to the minutes of the September meeting.
At the conclusion of its previous meeting on Sept. 22, the Federal Open Market Committee kept its benchmark rate in a range of 0% to 0.25%, but indicated that it could begin scaling back its $120 billion monthly bond purchases at the next meeting.
“Participants noted that if a decision to begin tapering purchases occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December,” the Fed minutes showed.
The Federal Reserve is aiming to end the taper of its $150 billion bond buying program around mid-2022, pointing to a taper of about $15 billion per month.
“The path featured monthly reductions in the pace of asset purchases, by $10 billion in the case of Treasury securities and $5 billion in the case of agency mortgage-backed securities,” according to the minutes.
But the ongoing pace of inflation has piled the pressure on the Fed to begin laying out the groundwork for rate hikes.
U.S. consumer prices rose 0.4% in September, ahead of the forecast of 0.3%, the Commerce Department reported Wednesday.
Powell, however, has been quick to downplay expectations that the start of bond tapering would initiate the countdown on rate hikes.
Further positive economic data, particularly in the labor market, where unemployment continues to decline, may force the Fed’s hand.
“There are risks of a little earlier than expected interest rate increase … as we’re likely to get good economic data that make the Fed feel more comfortable about normalising interest rates,” Eric Green, Chief Investment Officer of Equity at Penn Capital told investing.com in a recent interview.
The Fed’s most recent projections on the path of interest rates show that voting members are split on whether to raise rates in late 2022 or in 2023.
As bets increase on the Fed tightening monetary policy sooner rather than later, Treasury yields have continued to push higher. The economy, however, should be able to weather a moderate rise in rates.
“Rates going from one and a half percent to maybe two or even two and a half percent over the next 12 months, is not going to choke off the recovery,” Green added.
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