By Tom Burnett CFA
On September 22, 2021, the Federal Reserve issued its monthly policy Statement. Along with the formal Statement, the Fed released its updated set of economic projections for the next two years. While the Fed is not explicitly changing any benchmark indicators, the Statement does suggest that the program of monthly asset purchases will be curtailed soon. The Fed purchases $80 billion of Treasury bonds and $40 billion of mortgage-backed securities every month and it is this program that will be downsized in the near future. The Fed continues to look for inflation averaging 2% a year, but will tolerate a higher number over a short time span to get the overall average up to the 2% target level.
The Statement did not discuss specific interest rates, but the Table of Projections now assumes a fed funds rate of 0.3% in 2022, compared to the current range of 0-.25% which was repeated in the Statement today. In 2023, the rate forecast rises again to an average of 1.0% for the full year. In its June projections, the Fed expected no change in rates for 2022, and an increase to an average of 0.6% for 2023. In the bond market, rates moved slightly lower with the Ten-year bond trading in the 1.30-31% range.
The Fed Statement was issued unanimously.
The next Fed public Statement meeting will be November 2-3. At the December 14-15 meeting, the economic projections will be updated.
Tom Burnett CFA is Director of Research