FOMC says that tapering “may soon be warranted”

Summary

• As widely expected, the Federal Open Market Committee (FOMC) voted unanimously today to keep the target range for the fed funds rate unchanged at 0.00% to 0.25%.
• The Committee also decided to keep its monthly pace of asset purchases unchanged at $80 billion of Treasury securities and $40 billion of mortgage-backed securities. However, the FOMC said that tapering "may soon be warranted."
• In our view, the commencement of tapering could be announced at the next FOMC meeting on November 3. If payrolls in September rebound from their disappointing 235K increase in August, then the Committee could very well decide that the conditions to begin tapering have been met.
• Chair Powell suggested in his post-meeting press conference that the Fed could wrap up its asset purchases by the middle of next year, which would be a faster pace of tapering than in 2014.
• The FOMC pared back its GDP growth forecast for this year, but boosted its outlook for next year.
• The "dot plot" now has nine members looking for a rate hike by the end of next year, which is up from seven members in June. But the commencement of tapering, should it begin in November, does not indicate that rate hikes are around the corner. Most Committee members would want to see the economy return to "maximum" employment before hiking rates.

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