Fed Reserve Decision and Dots Turn Hawkish

Talking Points

Description

Changes from July’s statement

• July 28,2021:
  • The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered.
  • Inflation has risen, largely reflecting transitory factors
  • The economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings.

• September 22, 2021:
  • The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID-19 cases has slowed their recovery.
  • Inflation is elevated, largely reflecting transitory factors
  • If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.

Dot Plots vs. June

• June 16, 2021: 
  • 7 out of 18 members expect at least one rate hike next year
  • 2023 median FOMC dots at 0.625%. 13 FOMC members expect at least one rate hike by 2023

• September 22, 2021:
  • 9 out of 18 members expect at least one rate hike next year
  • 2023 median FOMC dots at 1% . 17 FOMC members expect at least one rate hike by 2023
  • New 2024 FOMC dots are released. Median dots for 2024 is at 1.75%
  • Longer-term median dot is unchanged at 2.5%

Summary of Economic Projections (SEP)

• Median Real GDP expected at 3.8% and 2.5% for 2022 and 2023
• Median Unemployment rate expected at 3.8% and 3.5% for 2022 and 2023
• Median Core PCE inflation expected at 2.2% for 2022 and 2023

On Tapering and Rate Hike Path

• While no decisions are made on tapering, as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate
• The timing and pace of the reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff
• Holdings of longer-term securities will keep financial conditions accommodative
• Drawdown of the $120bn monthly bond purchases could begin after the November 2-3 policy meeting as long as job growth through September is reasonably strong (Press Conference)