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As widely expected, at the Federal Reserve’s next policy meeting on Sept.21-22, the Federal Open Market Committee (FOMC) will announce the start of tapering at upcoming meetings, most likely during the November meeting, effective beginning of December.
As the July minutes stated, the US economy reached its goal on inflation and was “close to being satisfied” with the progress of job growth. We do not think that disappointing job creation figures for the month of August will incite the FED to further postpone tapering.
- We expect the FOMC to keep policy rates unchanged.
- The « dot plot » might be the most important announcement of this FOMC meeting. We do not think the 2022 and 2023 median dots will change (no hike in 2022, and two hikes in 2023) but 2022 is definitely a close call. We expect the 2024 median dot to show three hikes.
- We expect the SEP (Summary of Economic Projections) to indicate lower growth in 2021 (from 7.0% to 6.0%) but higher GDP in 2022 (from 3.3% to 3.5%) and unchanged growth for 2023 (2.4%). We expect the new 2024 projection to show 2% growth.
- We expect the FOMC will revise its forecast for higher inflation figures (Personal Consumption Expenditures) with projections moving up from 3.4% to 4.2% in 2021, from 2.1% to 2.2% in 2022 and unchanged in 2023 at 2.2%. We expect median inflation expectations at 2.1% for 2024.
- We expect FED Chief Powell to maintain an accommodative tone and to downplay any strong potential signals from the dot plot. He will also dissociate the start of asset-purchase tapering from policy-rate hikes.
As was the case in June, a more aggressive pace of hikes (dot plot) could push front-end interest rates higher, but this is not our base case scenario.
Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.