FOMC Preview: Probably Too Soon for Hints on Tapering
by Calculated Risk on 7/25/2021 07:59:00 AM
Expectations are there will be no change to rate policy when the FOMC meets on Tuesday and Wednesday this week.
Analysts will be looking for any hints as to when the Fed will start to taper asset purchases, although it is probably too early – especially given possible economic downside risks due to the resurgence in COVID cases – for the Fed to drop hints on tapering this week.
Here are some comments from Goldman Sachs economists on the timing of tapering:
Analysts will also be looking for comments on inflation, although the Fed is probably not too concerned with inflation right now. Some of the recent increase in inflation was due to base effects (prices declined at the beginning of the pandemic), and some probably due to transitory effects related to supply bottlenecks.
Note: No projections will be released at this meeting. However, for review, here are the June FOMC projections.
Wall Street forecasts are for GDP to increase at a 8.6% annual rate in Q2 (to be released this coming Thursday). This is lower than most forecasts when the Fed last met in June.
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
The decline in the unemployment rate depends on both job growth, and the participation rate. A strong labor market will probably encourage people to return to the labor force, and the improvements in the unemployment rate might be slower than some expect.
As of May 2021, PCE inflation was up 3.9% from May 2020.
PCE core inflation was up 3.4% in May year-over-year.