Concerns Over Delta Variant Risk... FOMC Likely to Delay Tapering

Powell Expected to Emphasize Economic Risks
Q4 Tapering Plan Faces Setbacks

Jerome Powell, Chair of the U.S. Federal Reserve (Fed)
[Photo by AP]

[Asia Economy Reporter Kim Suhwan] There are forecasts that the Federal Reserve's (Fed) tapering (reduction of asset purchases) schedule in the United States will be delayed later than initially expected due to the spread of the Delta variant virus.

On the 27th (local time), CNBC and Yahoo Finance reported that experts expect the Fed to discuss delaying the tapering schedule further at the Federal Open Market Committee (FOMC) meeting ending on the 28th (local time).

Previously, Goldman Sachs and JP Morgan Chase predicted that the Fed would signal the first tapering at the Jackson Hole meeting next month or the September FOMC, followed by an official announcement of asset purchase reduction in December.

However, CNBC reported that experts analyze that if the Fed takes the Delta variant risk seriously and presents a more pessimistic economic outlook, the tapering schedule is likely to be postponed.

Mark Cabana, investment strategist at Bank of America, said, "At this FOMC, Fed Chair Jerome Powell is likely to emphasize the risks caused by COVID-19," adding, "He is expected to make dovish remarks."

Currently, the Fed has been implementing an asset purchase policy of $120 billion per month as part of economic stimulus measures since the COVID-19 pandemic began.

Cabana said that due to the Delta variant risk, "the Fed's original plan to start tapering from the fourth quarter of this year will face setbacks," and "if the COVID-19 situation continues, demand is likely to shrink again, and there is a greater possibility that the inflationary trend will also ease."

Diane Swonk, chief economist at Grant Thornton, also said, "Chair Powell will acknowledge that the Delta variant is a significant factor of economic uncertainty."

Jim Caron, analyst at Morgan Stanley, predicted, "(At this FOMC) tapering will be mentioned, but the meeting will end without any conclusions."

Another focus of this FOMC is whether the Fed will decide to reduce its mortgage-backed securities (MBS) purchases.

Recently, as housing prices have surged rapidly and the housing market shows signs of overheating, voices calling for the Fed to reduce MBS purchases have emerged. However, if the tapering schedule is delayed, the MBS purchase reduction schedule may also be postponed.

The S&P CoreLogic Case-Shiller National Home Price Index for May, released on the 27th, rose 16.6% compared to the same month last year. The 16.6% increase is the highest rise in the past 30 years.