Fed: Taper announcement in November, no rate hikes until 2023 – Wells Fargo

Next week, the Federal Reserve will have its monetary policy meeting. Analysts at Wells Fargo, expect the FOMC to formally announce plans to taper asset purchases. They don’t expect higher rates until 2023. 

Key Quotes: 

“Our working assumption is that the FOMC announces a taper on November 3, with the actual tapering of purchases beginning at the start of December. From there, we assume that the Federal Reserve reduces its asset purchases each month by $10B for Treasury securities and $5 billion for MBS. At this pace, the Fed would complete its asset purchase program by the end of June 2022. The Fed's balance sheet, which is currently about $8.5T, would be slightly above $9T by mid-2022.”

“It is likely Chair Powell will pair the tapering announcement with another firm reminder that the bar for increasing short-term interest rates is much higher. At August's rate of job growth it would take a little more than two years to recoup 100% of the jobs lost during the pandemic, and even then the economy would still be several million jobs short of its pre-pandemic trend. Even with our faster projected pace of job growth, we still expect the labor market to face a meaningful employment gap for the entirety of 2022. In our view, this employment gap, paired with our projected slowdown in inflation, will keep the Fed from raising rates until 2023.”