As Fed Holds Rates Steady, Tapering Debate Looms Large
It’s reasonable to expect tapering to start toward the end of 2021 or beginning of 2022.
In its latest statement, released on July 28, the Federal Open Market Committee unsurprisingly held the federal-funds rate at 0.0%-0.25%. Nobody expected a change in rates at this meeting, instead the big issue on everyone’s mind relates to the timing of tapering. As a reminder, this meeting contained no new economic projections, only the press release and press conference.
With the median FOMC participant now expecting roughly two rate hikes by 2023 based on last month’s release, Chairman Powell’s comments at the last press conference that they were “talking about talking about” tapering, and the latest minutes (released July 7) showing a robust discussion about asset purchases, the timing of any tapering and/or tapering announcement is clearly on everyone’s mind. To this end, there was a slight change in the language of the release. In regard to the “substantial further progress toward maximum employment and price stability goals” that the FOMC is looking for before starting its tapering, the current release acknowledges that “the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings.” This is starting to set up a path for the FOMC to begin its tapering process. We believed that the FOMC would telegraph its tapering well in advance, and we see this as the start of that process.
While nothing is certain, and the incoming economic data could shift, we think it’s reasonable to expect tapering to start toward the end of 2021 (perhaps at the December meeting) or in the first quarter of 2022 (perhaps at the March meeting). While tapering could theoretically start before then, we think it is unlikely that inflation would prove so high and so persistent over the next several months that it would shift FOMC consensus completely away from its current "transitory" stance by the September meeting, which leaves only the November meeting, a meeting without economic projections.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.