The Federal Reserve’s top brass are set to meet this week, and the market is watching closely for hints about when the central bank will begin tapering its monthly asset purchases.
The Federal Open Market Committee, led by Chairman Jerome Powell, will meet for two days beginning on Tuesday. Powell will hold a briefing and press conference at the conclusion of the huddle, when he will announce what was discussed and take questions from reporters.
The consensus prediction among economists is that Powell will hint the central bank is planning to begin tapering its purchases of $120 billion in monthly Treasury bonds and mortgage-backed securities.
The majority (two-thirds) of economists surveyed expect that the Fed will make a formal asset-purchasing announcement during its next meeting in November, and more than half foresee tapering beginning in December, according to Bloomberg. That time frame is advanced from the last survey in July, when the vast majority of economists predicted tapering would launch next year.
The Fed has kept interest rates near zero since the start of the pandemic and has been buying $80 billion in bonds and $40 billion in mortgage securities each month. Powell has vowed not to raise interest rates until inflation is running above 2% and the country reaches maximum employment.
While inflation is running hot, well above the central bank’s 2% target, the U.S. is still millions of jobs short of where it was prior to the pandemic, which catapulted the country into a two-month recession and economic slump.
The August jobs report fell well short of economists’ expectations. The economy added just 235,000 new jobs last month, below the 750,000 that were expected. The overall unemployment rate dropped slightly from 5.4% to 5.2% but is still way off from February of last year, when it sat at 3.5%.
Anxiety around tapering has contributed to a global slump in markets this week. The Dow Jones Industrial index shed more than 900 points during its session low on Monday. It ended up closing down 614 points, or 1.8%, while the Nasdaq fell 2.2%, and the S&P 500 posted a 1.7% loss.
Another factor creating jitters among investors is the continuing threat to the economy posed by the delta variant of COVID-19. Deaths associated with the virus are up nearly 30% from two weeks ago, and new cases remain high, averaging about 150,000 per day.
The surge in cases has caused some businesses to delay returning workers to offices and resulted in canceled or rescheduled travel plans, affecting some of the sectors most disrupted by the initial wave of COVID-19.
Goldman Sachs recently revised down its gross domestic product forecast for 2021 from 6.2% to 5.7%, and Wells Fargo also slashed some of its GDP predictions.
Consumer confidence also remains low. Sentiment plunged to its lowest level in a decade last month, shedding nearly 13.5% from July’s level, according to the University of Michigan. Preliminary forecasts show that it is a bit higher this month but still remains lower than expectations.
Chinese real estate giant Evergrande is also affecting global markets. The country’s second-largest developer has more than $300 billion in debt and could default. There are fears the company’s collapse could trigger a domino-type effect across the global economy, similar to when Lehman Brothers declared bankruptcy in 2008.
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Original Author: Zachary Halaschak
Original Location: Fed meeting looms large as investors wonder about tapering