The Federal Reserve concluded its meeting on Wednesday and kept its policy unchanged but said that the economy continues to make progress towards its goals. This wasn't a surprise as it was unlikely that a taper would be announced especially given concerns about the Delta variant and potential secondary effects. However, by discussing the movement towards its goals, it continues to keep that as an option.
The decision also was unanimously approved as it contained some fodder for both doves and hawks. Markets rallied on the announcement especially following Chair Powell's press conference when he said that the Fed is nowhere near considering a rate hike. Overall, the market reaction was muted as the S&P 500
Powell continues to be quite transparent in terms of signaling the course of monetary policy and his thinking. "Our approach here has been to be as transparent as we can. We have not reached substantial further progress yet. We see ourselves having some ground to cover to get there," according to Powell.
Of course, there is still some wiggle room as "substantial further progress" is not a precise measure. Some are interpreting the "progress made" as meaning the Fed is getting close to a taper especially if the economy continues to add jobs and inflation remains elevated. Thus, it will be interesting to see how the market reacts to positive economic data.
Many thought we could see the Fed acknowledge the recent uptick in cases which would have been a more dovish signal. However, Powell didn't really discuss it and did say that recent impacts on the economy have been muted.
In terms of inflation, Powell did acknowledge recent strong readings but reiterated that it is transitory and more a reflection of supply chain issues and year-over-year comps. So far, the bump in inflation has not been significant enough to alter the Fed's trajectory.
Currently, the Fed is buying $80 billion of Treasuries and $40 billion worth of mortgages. Many believe that the Fed's MBS purchases are contributing to the rise in housing. However, Powell pushed back against this notion and said it's having a minimal effect. The recent slowdown in housing purchases supports his stance.
Fed futures were mostly unchanged as most don't expect a rate hike until the end of 2022 or the beginning of 2023. Some analysts are forecasting that the Fed will begin tapering asset purchases at the end of this year and raise rates sometime at the beginning of 2023.
