The Fed chair, Jay Powell, also said a reduction in the bond buying programme “may soon be warranted”.
Silvia Dall’Angelo, Senior economist at the International Business of Federated Hermes, pointed out that while there has been progress in the labour market and inflation would just justify a reduction in the pace of asset purchases, monetary conditions are likely to remain accommodative.
“New risks concerning domestic political dynamics and international developments – most notably, turmoil in the Chinese property sector – have emerged,” he explained. “All these considerations will eventually determine the path for the removal of monetary policy support – a process that is likely to be drawn out and cautious.”
The US central bank kept its main interest rate on hold at the rock-bottom range of 0 to 0.25 per cent, where it has been since the start of the pandemic and kept its asset purchases steady at $120bn per month.
However, the Fed confirmed that policy support would start to wane soon. The dot plot showed the median FOMC participant now expects the hiking cycle to start in 2022.
Seema Shah, strategist at Principal Global Investors, called the message “tantalisingly vague”.
“A moderation in the pace of bond buying coming soon doesn’t clear up if we are looking at November, December or even January for the start of tapering – but then does it really matter?” she said.
“The market is already pricing in tapering now and have promptly turned their attention to the date of eventual rate lift-off and the pace of rate hikes which, if anything, is a little more modest than markets had feared.”
For her part Candice Bangsund, vice president and portfolio manager of global asset allocation Fiera Capital said she felt November seems more likely but said “exact timing will hinge on the delta variant’s trajectory and progress on the labour market front”.