The Fed will unveil its bond buying plan next month; the unemployment rate is slowly falling

BENGALURU, Aug. 13 (Reuters) – The Federal Reserve will announce a plan to reduce its asset purchases in September, according to a solid majority of economists polled by Reuters who also said the US unemployment rate will remain above its level before the pandemic for at least a year.

Since the release last week of a strong US jobs report, which showed an unexpected drop in the unemployment rate to 5.4% in July, a flurry of Fed officials have suggested that the central bank America could start cutting its $ 120 billion in monthly treasury bill purchases. and mortgage backed securities (MBS) as early as possible. Read more

Almost two-thirds of those polled, 28 of 43, said the Fed is likely to announce a decrease in its asset purchases – currently pegged at $ 80 billion in Treasuries and $ 40 billion in MBS per month – at its September meeting.

But while that moment has become more likely in the minds of many Fed watchers over the past month, it is by no means a done deal for everyone.

“I know some Fed officials are pushing for this to happen at the September meeting, but it’s highly unlikely,” said Jim O’Sullivan, chief US macro strategist at TD Securities.

“November is possible if the next two jobs reports are strong enough, but the odds are in favor of December as the official announcement date.”

More than a third of those polled in the poll said the central bank’s Federal Open Market Committee (FOMC) would wait until November or December. None of the respondents said it would be announced at the Fed’s central banking conference in Jackson Hole, Wyoming this month, compared with more than a quarter who said in a June poll that it would be.

Almost 60% of those polled, 26 of 43, said they expected the Fed to start cutting back on asset purchases in the first quarter of next year. Almost everyone else has said it will happen in the fourth quarter of 2021.

The poll concluded that the Fed will start with monthly cuts of $ 10 billion in treasury bill purchases and $ 5 billion in MBS purchases. Some responses reached as much as $ 20 billion for treasury bills and MBS.

More than 80% of those polled, 24 of 29, said they expected the Fed to stop buying assets by the end of next year.

LATE UNEMPLOYMENT RATE

US inflation data for July, released this week, suggests to many that price pressures may have already peaked in the world’s largest economy. Read more

Nonetheless, the basic personal consumption expenditure price index is expected to average 3.1%, 2.5% and 2.1% in 2021, 2022 and 2023, respectively, above the target of 2% from the central bank.

But the unemployment rate is expected to stay above its pre-pandemic level of 3.5% for at least a year, according to 32 of 37 economists who answered a separate question.

“We believe that recouping half of the job losses is enough for many FOMC members to start declining, especially in light of the Committee’s opinion on the upside risks to the inflation outlook,” said Michael Gapen, chief US economist at Barclays.

Still, the Fed was to keep its key rate unchanged at near zero at least until 2023.

“Compared to the performance of its economy, the US central bank is the most accommodating in the world and is expected to start its bull cycle about a year later than normal. Plus, if growth weakens, the Fed will simply delay even further. a long time, ”he added. said Ethan Harris, global economist at Bank of America Securities.

Driven by roughly $ 1 trillion in fiscal stimulus, super-easy monetary policy and a rapid COVID-19 vaccination campaign, the U.S. economy has surpassed its pre-pandemic level with an annualized expansion of 6 , 5% of gross domestic product in the last quarter – the fastest recovery in the nation’s history. Read more

But economic growth is expected to average 6.2 percent in 2021, a significant drop from the 6.6 percent forecast a month ago, according to the survey, as the fast-spreading Delta variant pushed the number of new ones. coronavirus case at more than six months. high. Read more

The poll showed GDP growth was slowing to 4.2% in 2022 and 2.4% in 2023 despite the Senate passing a $ 1,000 billion infrastructure bill on Tuesday and the start of a debate on a separate $ 3.5 trillion spending plan. The infrastructure bill, which has yet to be passed by the US House of Representatives, is said to be the largest US investment in roads, airports and waterways in decades. Read more

(For other articles from Reuters Global Economic Survey)

Reporting by Indradip Ghosh and Shrutee Sarkar; Poll by Sujith Pai and Tushar Goenka Editing by Ross Finley and Paul Simao

Our Standards: Thomson Reuters Trust Principles.