FOMC Minutes: Door open to start QE tapering – UOB

Senior Economist at UOB Group Alvin Liew reviews the latest publication of the FOMC Minutes of the 27-28 meeting.

Key Takeaways

“While the latest July FOMC minutes showed that the Federal Reserve (FED) could reach the standards set out to start QE tapering this year, it also highlighted there remained significant differences among the FOMC members on the timing of QE tapering as they differed in their views about the economy, the persistence of high inflation, ongoing labor market developments and the risk to recovery posed by the COVID-19 Delta variant.”

“The minutes generally painted a positive outlook for the US but there were reservations/ cautious views among FOMC officials considering the supply constraints & bottlenecks, and the challenges posed by the COVID-19 variant. The views on inflation were wide ranging, from being transitory, to being persistent into 2022, to the re-emergence of significant downward pressure on inflation.”

“The latest FOMC minutes did not change our view. We still expect the first indicative hint of QE tapering to be released during the Jackson Hole Symposium (26 Aug) and further articulated into a pledge of the taper timeline in the 21/22 Sep 2021 FOMC. We expect the first taper to be carried out in Dec 2021 and the tapering process will last for nearly 1.5 years until May 2023. Thereafter, we project two 25bps rate hikes for 2023, first to 0.25%-0.50% in Jun and to 0.50%-0.75% in Dec.”