Global rating agency Moody’s highlights the delicate decision the US Federal Reserve (Fed) will have to make during Wednesday’s monetary policy meeting.
The rating giant initially states, “If the market perceives that the Fed is behind the curve in controlling inflation, it would lead to higher inflation expectations and long-term interest rates, potentially weakening the dollar and affecting asset values.” Before mentioning that while, on the other hand, if the Fed overreacts to inflation, ‘it could result in tightening monetary policy too much, in turn dampening economic growth.’
Additional key quotes
Even if the FOMC were to announce a quickening taper and an earlier end to bond purchases, the committee will likely stress data dependency with regards to the timing and pace of rate increases.
If the Fed announces faster tapering to end the bond purchase program, possibly by March 2022, it would more strongly signal that monetary policy is turning.
A faster taper would give the Fed the flexibility to begin raising rates anytime in the second half of 2022.
Read: Fed Preview: Dollar hinges on 2022 rate hike dots, guide to trading the grand finale of 2021
