Daily Management Review

Fed to begin tapering monetary stimulus from mid-November


The minutes of the September meeting of the US Federal Open Market Committee were published at the end of last week. As expected, committee members agreed on the parameters for a gradual winding down of the monetary stimulus programme.

It is a question of reducing the volume of the Fed's purchases of securities: US Treasuries and mortgage-backed securities (MBS). The minutes say that from mid-November or mid-December, the Fed will cut $10bn a month in bond purchases from the market and $5bn in MBS.

The minutes stipulate that this decision is not final and committee members will monitor the situation in the US economy. However, if the decision is taken at the next meeting, which will be held on 2-3 November, the cuts will proceed on schedule and in line with the parameters approved at the September meeting.

Analysts are confident that amid rising inflation, the Fed will cut its asset purchase programme but debate whether the Fed will further tighten policy by raising the benchmark discount rate. According to unofficial media reports, there is no consensus on the rate yet at the Fed either. 

"It is unlikely that we will see a quick resolution to this issue," MarketWatch quotes Ian Shepherdson, chief economist at Pantheon Macroeconomics, as saying, "Uncertainty will prevail for some time, but it won't be long before a tapering of the bailout program is announced.

source: marketwatch.com