The Federal Reserve cracked the door open ever-more slightly on Wednesday for the so-called tapering, that’s when it will begin to pull back on its massive bond-buying program aimed at stimulating the economy.
While Fed Chairman Jerome Powell said the Fed’s criteria for inflation has been met and the goal of spreading out employment gains more broadly throughout the economy has “all but met” his standards, the health crisis is still poses a risk to the economic recovery…at least for now.
“While no decisions were made, participants generally view that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate.”
Powell says an announcement could come as early as the Fed’s November meeting but that depends on what happens with the jobs market. While the Fed is happy with the progress, August’s sharp slowdown in hiring, and the ongoing labor shortage, are cautionary tales, which the Fed is willing to give another month or two to watch.
Also looming over the Fed, the possibility the Federal government fails to reach an agreement to raise the debt ceiling by an October deadline and defaults on its debts for the first time in the nation’s history.
Powell warned of the devastating impact that could have.
"The failure to do that is something that could result in severe reactions, severe damage to the economy, into the financial markets. And it's just not something that we could contemplate that we should contemplate...No one should assume that the Fed or anyone else can protect the markets or the economy in the event of a failure, fully protect in the event of a failure to, you know, to make sure that we do pay those debts when they’re due.”
As long as a debt crisis is avoided and the economic recovery remains on track, The Fed seems comfortable and ready to do less “soon...”
With half of policymakers predicting a rate hike could come in 2022.