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Does the Fed meet the conditions for the announcement of tapering in this month FOMC?

If you read the last FED minutes, one can concludes that the answer to the title question is yes. Below is an abstract from the last July minutes regarding this point (I highlighted the parts that I think are relevant):



"... All participants assessed that the economy had made progress toward the Committee’s maximum-employment and price-stability goals since the adoption of the guidance on asset purchases in December. Most participants judged that the Committee’s standard of “substantial further progress” toward the maximum-employment goal had not yet been met. At the same time, most participants remarked that this standard had been achieved with respect to the price stability goal. A few participants noted, however, that the transitory nature of this year’s rise in inflation, as well as the recent declines in longer-term yields and in market-based measures of inflation compensation, cast doubt on the degree of progress that had been made toward the price-stability goal since December. Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year because they saw the Committee’s “substantial further progress” criterion as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximumemployment goal. Various participants commented that economic and financial conditions would likely warrant a reduction in coming months. Several others indicated, however, that a reduction in the pace of asset purchases was more likely to become appropriate early next year because they saw prevailing conditions in the labor market as not being close to meeting the Committee’s “substantial further progress” standard or because of uncertainty about the degree of progress toward the price-stability goal. Participants agreed that the Committee would provide advance notice before making changes to its balance sheet policy. Participants expressed a range of views on the appropriate pace of tapering asset purchases once economic conditions satisfied the criterion laid out in the Committee’s guidance. Many participants saw potential benefits in a pace of tapering that would end net asset purchases before the conditions currently specified in the Committee’s forward guidance on the federal funds rate were likely to be met. At the same time, participants indicated that the standards for raising the target range for the federal funds rate were distinct from those associated with tapering asset purchases and remarked that the timing of those actions would depend on the course of the economy. Several participants noted that an earlier start to tapering could be accompanied by more gradual reductions in the purchase pace and that such a combination could mitigate the risk of an excessive tightening in financial conditions in response to a tapering announcement.... With respect to the effects of the pandemic, several participants indicated that they would adjust their views on the appropriate path of asset purchases if the economic effects of new strains of the virus turned out to be notably worse than currently anticipated and significantly hindered progress toward the Committee’s goals.



Now, what is considered "maximum employment" by the FED?. According to a definition I found on www.federalreserve.gov , "Maximum employment is the highest level of employment or lowest level of unemployment that the economy can sustain while maintaining a stable inflation rate". So, if the FED in the last minutes thinks the economy "has made progress toward the Committee’s maximum-employment and price-stability goals" and later said that "most participants remarked that this standard had been achieved with respect to the price stability goal", and we consider that the FED measures inflation as the 12 month increase in the PCE Index (Personal Consumption Expenditures Index), and that the last figure released on August 27th was 4.2% versus the one they saw on the last FOMC meeting of 3.9% (that later was revised up to 4.0%), and also that the figure of unemployment rate they saw was 5.9% corresponding to the figure of June vs the last (August), released on Friday last week of 5.2%, then one can reasonably concludes that the expectation that "most participants anticipated" about the evolution of the economy is meet and therefore, if they act consequently (and ceteris paribus), they should announce the reduction of the Asset Purchase Program on the FOMC of September to begin reductions in November or December, or they would mention something in September and they would announce in November to begin in December.


As I wrote in my previous article, the likelihood of the announcement would depend, among other things, on what the US Congress does regarding the fiscal budget and the debt ceiling (to avoid a debt crisis).


Let´s see what happen.

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