Economists predict the Fed will announce bond taper in November

[ATLANTA] The Federal Reserve will probably hint at its meeting next week that it is moving toward scaling back monthly asset purchases and make a formal announcement in November, a Bloomberg survey of economists has found.

The survey of 51 economists also predicted the US central bank would hold interest rates near zero through 2022 before delivering two quarter-point increases by the end of the following year.

The Federal Open Market Committee (FOMC) meets for two days starting Tuesday, and will issue a policy statement at 2 pm Washington time Wednesday. Updated quarterly economic and rate forecasts will be released at the same time. Chair Jerome Powell will hold a press conference 30 minutes later.

Two-thirds of economists surveyed expect the bond-buying announcement at the Fed's Nov 2-3 meeting, with more than half seeing the tapering starting in December - earlier than the July survey, when a plurality expected the decision in December and four-fifths were looking for tapering to start in 2022. The survey was conducted Sept 10-15.

As well as expecting rate liftoff in 2023, which matches the median projection of Fed officials in June, the survey predicts three more increases in 2024 that lift the upper bound of the federal funds rate to 1.5 per cent by year end.

Mr Powell will still be at the helm for that policy normalisation, according to an increasingly large majority of economists, who expect President Joe Biden will renominate him for another four-year term after his current tenure as Fed chair expires in February.

The tapering debate will be a central question for the FOMC next week. The policy group is expected to hold rates near zero and continue monthly purchase of US$80 billion in Treasuries and US$40 billion in mortgage securities. Officials have pledged to maintain bond buying until the economy shows "substantial further progress" on inflation and employment as it recovers from Covid-19.

Some regional Fed presidents, worried by rising prices and the hot US housing market, have pushed for tapering as soon as September. They want to complete winding down asset purchases before raising rates. Starting this month would mean finishing in time to lift rates as soon as late 2022, if necessary, to curb inflation.

Others have argued for patience to assess the economic impact of a rise in Covid infections stemming from the spread of the Delta variant.

BLOOMBERG