Fed Preparing To Implement New Changes As Economy Becomes Volatile

(TheLibertyRevolution.com)- The Federal Reserve is expected to consider reducing its monthly bond purchases this week while tying any actual change to job growth in September and beyond.

Fed officials, including Federal Reserve Chairman Jerome Powell, have said that their $120 billion in monthly bond purchases might be scaled back later in the year as the first step toward ending the pandemic-era policies implemented in the spring of 2020.

However, the unexpectedly weak jobs numbers for August were a setback. Now officials want to keep their options open while remaining ready to reduce bond purchase as soon as the early November policy meeting provided employment growth rebounds and COVID risks abate. However, if COVID continues to hinder economic recovery, they will delay tapering down on bond purchases.

According to a recent Reuters poll, more than sixty percent of economists expect a change in bond purchases isn’t likely to take place until December. With the pace of job gains slowing, economists also told Reuters that they’ve cut their forecasts for 2021 economic growth.

The September employment report is due to be released on October 8 and that data is likely to show whether the pandemic is having a deeper impact than the Fed anticipated earlier this summer. At that time the Fed believed the economy was starting to divorce itself from the pandemic. Now that is uncertain.

The Fed is holding its next policy meeting on Tuesday and Wednesday where they are likely to release fresh economic projections and a new read on their interest rate expectations. Projections will incorporate the volatile data from the summer where job gains were strong in June and July only to drop off in August. It will also factor in the unexpectedly strong inflation numbers and the surge in COVID cases that outpaces last summer’s wave.

Last December the Fed said it would not change its bond purchase policy until there was “substantial further progress” in gaining back the ten million jobs that were lost during the initial pandemic lockdowns.

While binding Fed policy to the pandemic made sense at that time, it now leaves policymakers dependent on a jobs revival that has thus far been unpredictable. By the end of August, the job market had only regained fewer than half of those ten million jobs.

There are some Fed officials that want this taper of bond purchases to happen sooner rather than later. They argue that, at this point, these purchases have done little to help hiring. What’s more, by keeping long-term interest rates low, these purchases pose a risk of fueling housing or other asset bubbles.