End of Year Fed Predictions

October 19, 2021
Two out of Three economists expect the Fed to announce bond tapering in November.


According to a recent Bloomberg survey of economists, the Federal Reserve (The Fed) will most likely make a formal announcement to scale back asset purchases in November. The survey, composed of 51 economists, also predicted that the U.S. Central Bank would hold interest rates near zero through 2022, before delivering two quarter-point increases at the end of the following year.  Note that the Fed’s September meeting moved this projected date up into 2022.  Since last June, The Fed has been purchasing $80 billion of Treasuries and $40 billion of mortgage-backed securities (MBS) to keep long-term interest rates from spiking and bolster demand. These purchases are to maintain their pace until the economy hits what The Fed deems to be “substantial” progress on inflation in the labor market. As stated in Jerome Powell’s speech at the Jackson Hole conference last month, the question of tapering is completely separate from the question of when to raise interest rates.  Two-thirds of economists in Bloomberg’s survey expect bond-tapering to be announced at The Fed’s November 2-3 meeting, with over half expecting tapering to begin in December. This is an earlier forecast than what most economists expected just a few months earlier. Results from the July 22 survey suggest that tapering would begin by 2022, with four-fifths of economists concurring. The most recent survey was taken between September 10 - 15.  In a response to Bloomberg’s survey, Scott Brown, chief economist with Raymond James Financial, said, “The delta variant and some moderation in inflation should allow the Fed to be patient in tapering, with an announcement likely in November or December, depending on the economic data. The liftoff in short-term interest rates is still a long way off.”

Source: National Mortgage Professional