US: Fed kept the steady hand… opens the door to QE taper – UOB

Senior Economist at UOB Group Alvin Liew assesses the latest FOMC event (Wednesday).

Key Takeaways

“The Federal Reserve as widely expected, kept its policy parameters and asset purchase programme (QE) unchanged in its 27/28 Jul 2021 FOMC. The FED also kept the interest paid on excess reserves (IOER) at 0.15% and the overnight reverse repo agreements (ONRRP) at 0.05%. It also established a domestic primary credit facility at the existing level of 0.25%.”

“In his press conference, Chair Powell said the FED is nowhere near considering a rate hike …  Powell was also clear that it is not timely to think about raising interest rates right now, and the FED is looking at asset purchases instead. Powell revealed there is a range of views in the FOMC on when tapering is appropriate, and that the July meeting was first deep dive on timing, pace and composition of taper, with no decisions being made yet.”

“The latest FOMC decision did not change our view that the first indicative hint of QE tapering could be released during the Jackson Hole Symposium (26 Aug) and further articulated into a pledge of the taper timeline in the 21/22 September 2021 FOMC. We expect the first taper to be carried out in December 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 June and then to 0.50%-0.75% in December.”