The Fed Could Sound More Worried About the Virus and Less Ready to Tighten Policy.


Author: Maria Andretti

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There have been speculations that the results of the Wednesday afternoon meeting may lead to more implementation of more ultra-easy policies because of the recent spike in the delta variant of the covid-19.

Covid 19 Delta+

Although this move has not been expected, with the current fast spread of this variant of the coronavirus, the Federal Reserve Officials will likely channel more efforts into reducing the impact of this variant spread than on other economic policies.

Initially, there have been speculations before cases of the Delta variant emerged, that beginning from today, the feds will create schedules to pare back its bond-buying, which could be the major step in easing policy for economic recovery.

Commenting on recent developments, Mark Cabana, who is the head of short U.S rate strategy in Bank of America, said; “This was supposed to be the meeting where they were focusing on tapering.”

The Fed’s Statement

The Fed will release a statement today at 2 p.m. ET. This is following the two days meeting, after which Jerome Powell, the Chairman, will address the media 30 minutes after.

One of the topics the market experts expect the Feds to discuss is reducing the minimum $120 billion monthly purchases of the Treasury and mortgage-backed securities. The unwinding was scheduled to begin by late this year or early next year.

Experts also expect the chairman, Powell, to understand that the recent rise in inflation is not permanent. There are high indications that it will fall after a burst of pent-up demand spending and issues with the supply chain are resolved.

Cabana also mentioned that; “In the FOMC statement, they talk about how the path of the economy is dependent on the path of Covid. Because of that, they’re naturally going to sound cautious. They’ll talk about tapering, but that will seem a formality given the fact they’re going to have to note there are increasing downside risks.”

But the new variant of coronavirus has thrown up several uncertainties, even showing signs of affecting the value of cryptocurrencies in other exchange platforms like ChangeHero and Kraken.

Tapering schedule

Early this year, there has been a serious indication that the feds need to start discussing the rollback of bond purchases around late August or in September. At the same time, the slowing of purchases was expected to start before the end of the year.

Cabana had mentioned that the feds were expected to signal that it will slow the bond purchases in September. It will take as long as the end of the year to end the purchases, and if it delays till year-end, it will increase the interest rates. However, economic forecasts have placed two interest rate hikes in 2023.

But since the advent of the delta variant, a lot of these forecasts has been affected. Another economist, Diane Swonk, who is the chief economist at Grant Thornton, stated, “He’s going to have to admit that the delta variant makes uncertainty about the outlook much higher. He has to be very careful about the words he uses. It may dampen demand as well. I wouldn’t be surprised to see people canceling going inside to restaurants.”

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Maria Andretti is an Administrative Assistant with eight years of experience working alongside the VP finance of a Fortune 500 company.