WSJ "US Fed Aims to Reach Agreement on Starting Tapering in November"

Jerome Powell, Chair of the U.S. Federal Reserve (Fed) (Washington AP=Yonhap News)

[Asia Economy Reporter Kim Heung-soon] There is speculation that the U.S. Federal Reserve (Fed) will begin tapering (reducing asset purchases) in November.

The Wall Street Journal (WSJ) reported on the 10th (local time) that the Fed is pushing for an agreement to start tapering at the Federal Open Market Committee (FOMC) regular meeting scheduled for the 21st-22nd.

Several senior Fed officials have recently made statements supporting the start of tapering within this year during interviews and public speeches. Not only the 'hawkish' (favoring monetary tightening) Federal Reserve Bank presidents but also Chairman Jerome Powell and New York Fed President John Williams have emphasized the likelihood of starting this year.

WSJ noted that it is unlikely that the $120 billion monthly bond purchase reduction will begin at the September FOMC, but Chairman Powell may hint at the possibility of starting tapering at the next FOMC regular meeting on November 2-3.

This behind-the-scenes movement by the Fed shows that despite setbacks in employment recovery due to the spread of the COVID-19 Delta variant, they do not see a need to delay tapering.

Regarding the detailed tapering plan, a method of reducing purchases by a fixed amount each month to completely end the asset purchase program by mid-next year is being discussed.

Specifically, WSJ reported that a plan is being considered to reduce U.S. Treasury purchases by $10 billion per month and mortgage-backed securities (MBS) purchases by $5 billion per month.

Afterward, discussions on the timing of interest rate hikes are expected to intensify, as many Fed officials already view the end of the asset purchase program as preparation for future rate increases.

At the previous June FOMC meeting, only 7 out of 18 members supported a rate hike next year, but WSJ forecasts that if 2 more members change their stance in future meetings, support for a rate hike next year will strengthen.