Sept. 21 (Reuters) – Federal Reserve policymakers begin a two-day meeting on Tuesday to discuss the outlook for jobs and inflation in the United States and craft a policy response that could bring the central bank closer to cutting its support for the economy.
Here are five things to look for during the meeting, which ends Wednesday at 2 p.m. ET. (6:00 p.m. GMT)
The Fed has pledged not to cut the $ 120 billion in treasury bills and mortgage-backed securities it purchases each month until it sees “further substantial progress” towards its targets. maximum employment and inflation of 2%.
Fed Chairman Jerome Powell said in August that he believes the bar has already been reached on inflation and sees “clear progress” on the jobs front, making a bond program probably appropriate this year L1N2PY1FI.
But that was before a government report showed a surprisingly small gain of 235,000 jobs last month read more.
Policymakers will debate the trajectory of jobs, now that the summer’s COVID-19 outbreak has started to recede and the risk of inflation becoming persistent.
At their last meeting in July, policymakers noted “progress” towards their goals.
Adding an adjective like “clear” or “further” would be one way of getting closer to a decision to reduce their bond purchases, perhaps as early as November.
Fed policymakers want to separate a decision to cut asset purchases from a subsequent decision to raise their short-term key rate near zero.
The quarterly projections expected on Wednesday could blur this distinction if they show that Fed policymakers advance their expectations for this first rate hike until 2022.
In June, the majority planned to keep rates at their current level until 2023 or later. This meeting will be the first to include forecasts for 2024 read more.
DEBT CEILING REMOVAL
Without action by lawmakers to raise the current limit of $ 28.4 trillion on federal government borrowing, the country will run out of operating funds on October 1, triggering a partial government shutdown. A few weeks later, the country could run out of funds to pay its bills.
The resulting default would upend markets, push the country back into recession and permanently harm the U.S. economy, Treasury Secretary Janet Yellen said.
The last time the country faced a similar debt ceiling alert, in 2013, Fed policymakers secretly outlined a range of potential actions to counter what they believed to be serious and destabilizing stress on the market. Powell is unlikely to provide a clear roadmap this week, but he could be asked about it at his press conference on Wednesday.
CHANGE AT THE TOP
This week’s meeting is the last before the Fed’s leadership changes that could turn out anywhere from measured to historic, depending on how US President Joe Biden uses the opportunity. Read more
Randal Quarles’ term as Vice President of Oversight ends on October 13. He could remain Fed governor, but Biden is expected to appoint another as the Fed’s new financial regulation czar.
Biden will also have to decide whether to re-elect Powell and who to choose to succeed Fed Vice Chairman Richard Clarida, whose term ends on Jan.31. There is also a vacant seat on the Fed’s board of directors, which is made up of seven members.
An announcement could come in the weeks leading up to the Fed’s next two-day session on November 2-3.
Other issues are also vying for the attention of Fed policymakers. Among them:
A plunge in the US stock market, fearing that a potential default by real estate developer China Evergrande Group could destabilize global financial markets.
An in-depth internal review of policies governing financial transactions of Fed officials following an explosion in securities trading ethics by two Fed chairmen that sparked calls for change from the Senator Elizabeth Warren, among others. Read more
Report by Ann Saphir; Editing by Dan Burns and Cynthia Osterman
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