US Fed Signals Tapering is on the Horizon

• On September 22, the US Federal Reserve kept its benchmark rate at 0-0.25%, and Fitch Solutions expects it will remain at this level until 2023. However, the Fed made two signals that policy changes are approaching. 
• Firstly, the Federal Open Market Committee (FOMC) stated that "a moderation in the pace of asset purchases may soon be warranted." Secondly, according to an accompanying 'dot plot' of FOMC member's projections, half of participants (nine) now expect interest rate increases will commence in 2022, up from seven in the June meeting. 
• Fitch anticipated an announcement that the Fed is preparing to taper its asset purchases, as did markets, given persistent inflationary pressure, a rebound in growth and broad financial market stability. Over recent months, the Fed has pursued a cautious communication strategy regarding its asset purchases in order to manage market expectations and avoid a 'taper tantrum', a goal it appears to have achieved. 
• In his remarks following the policy decision, Fed Chairman Jay Powell stated that policymakers broadly expect a gradual tapering that concludes by the middle of 2022 and reiterated that the timing of interest rate hikes is not directly tied to the reduction in asset purchases. As such, Fitch maintains a neutral outlook for fixed income markets and does not expect a sudden and sharp rise in yields.

(Source: Fitch Solutions)