KUALA LUMPUR: The US Federal Reserve decided to maintain its fund rates at 0.00-0.25 per cent, as widely expected, at its Federal Open Market Committee's (FOMC) September 2021 meeting.
However, the US' central bank had a more dovish view on the rate outlook as more FOMC members shared their assessment that the sustained economic recovery warranted for the rate hike to begin sometime next year, MIDF Research said.
"Although no changes made to the existing pace of asset purchases (US$120 billion per month) for now, the FOMC discussed about initiating the tapering of the asset purchases.
"While it is expected to be concluded in the middle of next year, this indicates that the tapering may begin later this year, as early as in November 2021," MIDF Research said in a report this morning.
Despite the announcement, the firm said the Fed's chair had stressed during the virtual press conference that it had yet to finalise the exact timeline and the pace of the tapering.
MIDF Research said although growth was expected to remain strong in the second half of 2021, the Fed had downgraded its growth projection for the whole year 2021.
The Fed now predicts the US' gross domestic product to grow at 5.9 per cent this year, still a rapid expansion despite a downgrade from 7.0 per cent in its June projection.
To a certain extent, the downgrade reflected the slower expansion in consumer spending amid another round of resurgence in Covid-19 infections and high inflation, the firm added.
The Fed also upgraded its forecast for the PCE price inflation to 4.2 per cent for 2021 (June projection: 3.4 per cent).
"We believe it is appropriate for the Fed to keep its policy rate unchanged at current ultra low levels for now to support a more sustainable recovery in the US economy.
"With the Fed indicating its expectations that the tapering could begin next year, this reflects confidence that the progress in the US economic recovery will eventually allow the Fed to gradually unwind its easy monetary policy and consider to begin raising its policy interest rate as early as next year," it said.