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The Fed sent a Taper signal at the (FOMC) meeting of the Federal Open Market Committee in September and is likely to announce the start of scaling back bond purchases at its November meeting.
Federal Reserve Chairman Colin Powell revealed that it will cut its bond purchases by $15 billion at each FOMC meeting, including $10 billion in treasury bonds (UST) and $5 billion in mortgage-backed securities (MBS), until September 2022.
Goldman Sachs believes that if FOMC ends its plan to scale back its bond purchases in the middle of next year, an interest rate hike could be actively discussed as early as September 2022, although it is not expected to begin until 2023.
The bitmap (dot plot) shows Fed officials showing forecasts for economic growth, jobs and inflation, as well as when to raise interest rates. According to the median forecast shown on the bitmap, interest rates will be raised 0.5 times in 2022, three times in 2023 and three times in 2024, which is tougher than Goldman Sachs's expectation of not raising interest rates in 2022 and raising interest rates two times in 2023 and three times in 2024. But Goldman believes that the overall message from the meeting is not as tough as the median point suggests for three reasons.
First, Goldman Sachs expects core personal consumption expenditure (PCE) in the fourth quarter of 2022 to be less than 2.0% of FOMC, and expects durable goods prices to rise sharply next year, which may prevent interest rate hikes.
Second, Powell firmly said that high inflation is temporary and inflation expectations will still be well controlled. Rising inflation is emerging as a result of greater supply-side constraints: core inflation forecasts give a modest boost. He pointed out that the limited supply side poses a challenge to inflation.
Third, and most importantly, Powell himself predicts that interest rates will be raised 0 times in 2022, 2 times in 2023 and 2 times in 2024, which is a milder path than the median point implies.
Although the statement is somewhat vague, Powell pointed out that at present, the criteria for further substantial progress in price stability in the US economy have been met, and employment has also been "almost met." Powell said he did not need to see a "very strong" September employment report, but wanted to see a "decent" report before he could safely announce a reduction in bond purchases at the November meeting.
