The Fed will look to begin tapering before the end of 2021


Yesterday saw the eagerly anticipated Federal Reserve (Fed) meeting and bullish dollar investors were not disappointed. The Fed turned hawkish in its guidance on quantitative easing and interest rates for the coming year. The signal was given that the purchasing programme will end sooner than previously expected and that the interest rate will be raised earlier than 2024. The immediate response was that the dollar gained against currencies where the Central Bank had a more relaxed attitude to inflation.

During the policy announcement it was stated that, if the economy continues to conform to expectations, they will look to begin tapering before the end of 2021. The other big takeaway was the approach towards interest rates and in the quarterly dot-plot forecast, there is an expectation that the rate will be lifted to around 0.50% before the end of 2022. Going further into the future, there is also a prediction the Fed will raise rates to 1% in 2023 and 1.75% in 2024.

Recent concerns that the inflation and employment rates have not met expectations were also brushed off by Powell during his press conference. He mentioned that the tests were all but met and that the Fed did not need to see a “very strong employment report”. This lets us into the notion that Powell and fellow members increasingly view the jobs market and inflation criteria for tapering as already achieved. It also shows that they have become more open to the requirement to lift interest rates faster than previously thought necessary.

Key announcements

09:00 – EUR – Markit PMI Composite (Sept); expected to increase to 59.7 from previous 59
09:30 – GBP – Markit Services PMI (Sept)
12:00 – GBP – BoE Interest Rate Decision; expected to remain at 0.1%
12:00 – GBP – BoE Monetary Policy Summary
12:00 – GBP – BoE Minutes