Will they (the Fed, taper), or won’t they?

20 September 2021

In this week’s Market Pulse, Senior Research Analyst Sebastian Orsi focuses on potential policy changes as the US Federal Reserve meets this week. The Fed will provide an updated economic outlook and may announce when it will begin tapering its pandemic emergency asset purchase programme, giving the market advance notice and possibly driving some near-term market volatility. 

  • Latest US economic datapoints suggest the US consumer and manufacturing sectors are in good shape. There have been Covid related disruptions, but these should moderate similar to prior waves. 
  • The US Federal Reserve will meet this week. The US Federal Reserve will provide an updated economic outlook, now extending into 2024, and may announce when it will begin tapering its pandemic emergency asset purchase program (which provides liquidity and keeps interest rates lower than they might be otherwise), giving the market advance notice.  The announcement on tapering could be pushed out to November, but would then remain a key risk.  The pace of tapering may be indicated.  Markets will focus on how quickly the Fed may expect to raise interest rates but the expectations are the members’ outlooks, not a Fed forecast and remain subject to change.  
  • While the peak rate of global economic growth (off of the low pandemic base) may be in the rear view mirror, and monetary policy seems set to downshift, the growth outlook remains above trend as economies are recovering from Covid and restrictive measures are gradually removed. 
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