MNI: Fed Sees Taper 'Soon'; Hawkish Dots Hint at 2022 Hike

The Federal Reserve on Wednesday said it will "soon" start reducing its USD120 billion monthly bond purchases if the job market keeps making steady progress as officials expect, while official forecasts hinted at a possible rate hike as early as next year.

"If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted," the Fed said in its post-meeting statement.

Fed officials, in their quarterly forecasts, were evenly split on the prospect of a rate hike next year, while many participants were penciling in more than one rate increase for 2023. Still, the median forecast was for the federal funds rate to end next year at 0.3%.

Ex-Fed officials told MNI to expect a nod to a taper that might come as early as November in the FOMC statement Wednesday. MNI also reported the dot plots would likely show a hawkish tilt, including stronger support for a rate increase next year.

Growth for this year was cut to 5.9% from 7%, while 2022 was raised to 3.8% from 3.3%. This year's jobless rate estimate was increased to 4.8% from 4.5% while the next two years were unchanged at 3.8% and 3.5%. Core PCE inflation was increased to 3.7% this year from 3%, and to 2.3% next year from 2.1%.

The median fed funds rate in the dot plot was raised to 0.3% next year from 0.1%, and to 1% from 0.6% for 2023. The report added a projection for 2024 at 1.8%.

As of June, Fed officials' median forecast pointed to a 2023 liftoff for interest rates, but already showed seven members wanted an earlier move in 2022.

The Fed changed its description of inflation in the post-meeting statement: it previously said inflation "has risen" and now said "it is elevated," potentially a sign that officials are becoming less sure of how transitory price pressures might be.

Fed Chair Jerome Powell will take questions from reporters at a press conference starting at 2:30 pm in Washington. He will likely face questions not just on monetary policy but also about recent reports that Fed officials traded stocks and other assets whose prices their policies directly affect.