Mon. Dec 6th, 2021

Returning to school is not the only item on the agenda this fall that could have a major economic impact.

BofA Global analysts also wrote in November as the Federal Reserve’s likely start date for cuts in its large-scale asset purchases, compared to previous forecasts for a January start.

The increased schedule comes days after the minutes of the Federal Open Markets Committee (FOMC) meeting in July of the Federal Reserve, which showed that most of the top 19 central bank officials saw fit to start slowing down. of its $ 120 billion monthly bond purchases this year.

The Fed’s TMUBMUSD10Y Treasurys Purchase Program,
1,260%
and mortgage values ​​MBB,
-0.03%
each month he has been credited with helping avert a broader financial crisis during the pandemic, mainly by maintaining liquid markets and credit conditions, while fostering economic recovery.

With children nationwide expected to return to classrooms this fall, hopefully releasing more parents to return to the workforce, the Fed also seems increasingly prepared to begin the process of getting markets back to work on their own. sols.

“The July FOMC minutes modified our base case for volume reduction, pushing the timeline forward by about two months from about January to November, although it stated our expectation that the Fed would move more slowly and depend of data, ”Meghan Swiber’s team wrote to BofA Research in a note Friday.

While the timing of the volume reduction will be key, so will the pace and composition of the cuts, the team said.

To this end, BofA Global presented this new forecast of what the setback could be like. Its base box shows purchases ending around next September.

The Fed’s purchase could end in 12 months

Swiber’s team argued that the U.S. economic recovery continues toward the Fed’s goal of “continuing to make substantial progress” since the worst shocks of last year’s pandemic, but also that central bank decisions on the withdrawal of their extreme monetary support will remain “data dependent”.

Dallas Fed Chairman Rob Kaplan told Fox Business Network on Friday that he could reconsider his request for the Fed to quickly begin reducing its monthly purchases if it appears that the spread of the coronavirus delta variant is slowing. economic growth.

While it is a lifesaver for the markets, the Fed program has also been criticized. Some experts fear that the central bank’s Goliath footprint has eroded risk-based prices in the markets, which may help keep the bubbles under control, and has fueled an uneven “K” -shaped recovery, where most the accumulated wealth has been for the rich, not for the poor, as stocks, financial assets and house prices have reached record highs during the pandemic.

Read: House prices could cool when the Fed restricts its bond buying program. But a crisis? Unlikely.

Major U.S. stock indices were trading higher on Friday, but with the Dow Jones Industrial Average DJIA,
+ 0.65%
towards a weekly loss of 1% and the S&P 500 SPX index,
+ 0.81%
about 0.6% less than the week, according to FactSet data.

Take a look: Investors want answers, and they want it right away, says bond portfolio manager about delta variant

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