US Fed cautious on separating tapering, 1st rate hike

ANKARA

US Federal Reserve officials have been cautious on separating the timing of interest rate hikes and the beginning of tapering, the process to reduce accumulating new assets on balance sheet, an expert said Monday.

"The Fed officials have been very careful about the timing of tapering and the first rate hike ... trying to distinguish those two," Paul Ashworth, chief North America economist at London-based consultancy Capital Economics, said in a webcast titled “Fed preview – What to expect from the September meeting.”

He said the central bank may go on a month-on-month basis about how tapering would go, but added that Federal Open Market Committee (FOMC) members may need to see maximum employment first.

Fed Chair Jerome Powell said on Aug. 17 that the bank is in the process of putting away its emergency tools, which was viewed as a hint that FOMC members would soon decide to begin unrolling the central bank's $120 billion monthly asset purchase program.

Official date expected this week

The Fed is widely expected to announce an official date about when tapering would start at the end of its two-day meeting set to conclude on Wednesday.

The central bank will also release its new macroeconomic projections, such as economic growth, unemployment, interest rate, and inflation.

"The unemployment rate has been falling rapidly," said Michael Pearce, a senior US economist. He noted, however, that there is still a shortfall in employment.

The unemployment rate fell to 5.2% in August from 5.4% in July, but the world's largest economy added just 235,000 jobs in August and still has 8.4 million unemployed workers as of last month, according to the US Labor Department.

Job openings, on the other hand, rose 749,000, or 6.9%, from the previous high to a new record of 10.9 million in July, according to the latest department figures.

As for interest rates, Fed projections released on June 16 indicated that the bank would make two rate hikes, by 0.25% each, in 2023.

Andrew Hunter, a senior US economist, said global markets expect an additional one or two more rate hikes for 2024.

"It will be hawkish if the pace of tightening accelerates, such as three hikes for 2024," he said.

Pearce then noted even three rate hikes for 2024 would be different than the Fed's previous rate hike cycles.