In early 2022, the Fed saw an accelerated decline in the issuance of mortgage-backed securities

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No FOMC forecasts were released at this meeting. While the committee will discuss its cutback plans, Powell indicated that he believes it is too early to slow down stimulus.

“The Fed is far from arguing over when to raise rates,” said Scott Brown, chief economist at Raymond James Financial, in response to a survey. “Narrowing can be hinted at at Jackson Hole or the September FOMC meeting,” with “an official announcement by November starting in early 2022.”

Much of the FOMC’s discussion will focus on when and how to cut back on stock purchases, and there is a consensus among economists on how this plan will go.

Three-quarters of economists are looking forward to either an early signal at the Kansas City Fed meeting August 26-28 in Jackson Hole, Wyoming, where Mr. Powell is likely to speak, or at the FOMC meeting September 21-22, when the committee updates its quarterly forecasts. …

Almost half of those surveyed believe that this is likely to be followed by an official announcement of the cut in December, while the actual cut will begin in the first quarter of 2022, according to 71% of economists.

In the poll, 8% said the Fed would start by phasing out MBS, while 46% said the cut would be in equal amounts, effectively completing mortgage purchases well before Treasury bonds. This is the approach proposed by Boston Fed President Eric Rosengren. Another 46% say the cut should be proportional to purchases.

The goal will be “mechanical downsizing every month – I think they will go $ 10 billion a month,” said Thomas Costerg, senior US economist at Pictet Wealth Management. The process will be “like watching paint dry,” he said, echoing the characterization of the latest Fed bond purchases, including by then-chairman Janet Yellen.

The decline in MBS levels has been one of the most controversial issues, as St. Louis Fed President James Bullard and Christopher Waller, a member of the Federal Reserve Board of Governors, have spoken out in favor of focusing early on on cuts due to the hot housing market. In his testimony to Congress, Mr. Powell said the MBS and Treasury purchases have roughly the same economic impact, which was also stated by Mr. Williams.

More than half of economists expect the cut to last between 10 and 12 months, completing by the end of 2022 if it starts early in the first quarter.

Some Fed officials say they want to complete rate cuts before raising rates, and their average forecast suggests they will be delayed until next year, although 7 out of 18 officials did support a rate hike in 2022.

Hugh Johnson, chairman and founder of Hugh Johnson Advisors, said he expects the Fed’s policy to “remain favorable” through the second half of 2022 “with a” likely shift towards restraint “in the first quarter of next year.

Higher interest rate projections are made amid rising inflation when the reopening reopened, resulting in significant increases in prices for used cars, hotels and flights, as well as other purchases. On the CPI in June, consumer prices rose 5.4% year-on-year, the fastest rise since 2008.

This month, the FOMC will retain the language in its statement that the rise in inflation mainly reflects temporary factors, according to 96% of economists. The respondents mostly agree: 78% believe that the temporary statement is correct.

“For the most part, price increases are likely to be temporary, although fiscal pressures on wages are likely to be more severe,” said Lindsay Piegza, chief economist at Stifel Nicolaus & Co.

However, three-quarters of economists say the risks to inflation are higher than the FOMC forecasts, which is the most worrying factor when considering economic risks.

Powell’s current term as Fed chairman expires in February. Four-fifths of economists expect Mr. Biden to keep him at work, an overwhelming number up slightly from June.

Mr. Powell dismissed all questions about whether he would serve another four years if asked, leaving the impression unchanged that he would like to stay at the helm. He enjoys widespread support among Biden’s top aides for another term, although a decision is expected later this year and has not yet been brought to the president’s attention, according to people familiar with the matter.

Lael Brainard, a member of the Federal Reserve Board of Governors and a Democrat, is seen as the most likely alternative choice by 16% of economists surveyed.

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