Bank of America Global Research highlights three takeaways from today's Federal Reserve meeting
1. "Taper on track to be announced in November and be completed by mid-year. While the taper signal in the statement was vague - "may soon be warranted" - Chair Powell clarified in the press conference that they could be ready in the upcoming meeting (in November). Hence absent a significant disappointment in the employment data or financial market disruption, this strengthens our view that the Fed will announce and begin tapering in November
2. Committee members are edging toward higher rates: The Committee is now evenly split between the first hike in 2022 or 2023, which brought the median up to 0.25%. The consensus is now for 3 hikes in both 2023 and 2024, leaving rates at the end of the forecast horizon at 1.75%. As Chair Powell noted, this is still decently below the long-run funds rate of 2.5%, which means policy is still accommodative," BofA notes.
3. The case of higher inflation is building due to greater supply side constraints: Forecasts were boosted for core inflation modestly and Powell noted that the supply side is constrained and creating challenges for inflation. The Fed has become more concerned about persistent price pressures, the supply side remains constrained for both goods and labor.