Topics shared in this publication are:

  • The Federal Reserve is using both of its major monetary policy tools: the short-term overnight interest rate (federal funds rate) and purchases of long-maturity U.S. Treasuries and mortgage-backed securities, known as quantitative easing (QE) to support financial markets and the economy

  • When the time comes to tighten policy, we believe the Fed plans to slowly reduce (taper) the monthly pace of asset purchases first and raise (hike) interest rates later

  • There are three criteria for hiking rates, and the Fed would like to see “substantial progress” towards those criteria before tapering.

  • Following the Federal Open Market Committee (FOMC) meeting and Chair Powell’s press conference on September 22, 2021, we think the Fed is likely to announce a tapering of asset purchases at the November 3 meeting

  • We expect the taper to start in late 2021 at a pace of $15 billion per month, with the option to increase or decrease that rate depending on economic conditions

  • If the economy continues to improve and tapering progresses smoothly, the Fed could commence hiking rates in mid-to late-2022

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