Fidelity: Path for Fed stimulus reduction looks narrow
Fidelity: Path for Fed stimulus reduction looks narrow
Below is a commentary by Anna Stupnytska, Global Economist at Fidelity International, on the US central bank.
In a challenging week for financial markets, the Fed signalled in its September meeting that tapering of asset purchases 'may soon be warranted', in line with expectations. All eyes now look to November as the most likely start date for the unwind of extreme policy accommodation.
At the press conference, Powell signalled he expected tapering to conclude by the middle of next year, which is somewhat more hawkish than market expectations.
The dot plot signalled a moderately more hawkish tilt relative to its June version, suggesting two more FOMC members now favour an earlier lift-off in 2022 and the 2023 median dot has shifted up to 1%. The Summary of Economic Projections showed a slower growth for 2021 but an upgrade for 2023, while the inflation path has been upgraded over the forecast horizon, with PCE inflation now expected to be above target through 2024.
With inflation pressures likely to prove more persistent and growth risks skewed to the downside over the next few months, the path for policy normalisation looks narrow and challenging, with much room for policy missteps.