United States Monetary Policy September 2021

United States

United States: Fed keeps rates at effective floor in September; hints at tapering its QE purchases

September 22, 2021

At its meeting on 21–23 September, the Federal Open Market Committee (FOMC) decided to hold the target range for the federal funds rate at its effective floor of 0.00%–0.25%, which was widely expected by market analysts. Furthermore, in order to ensure sufficient liquidity for households and businesses and the effective transmission of monetary stimulus to broader financial conditions, the Fed reaffirmed its commitment to increase its purchases of Treasury securities, and agency residential and commercial mortgage-backed securities, at least at the current pace of USD 80 billion per month and USD 40 billion per month, respectively.

The Fed kept the target range unchanged due to the economic turmoil caused by the ongoing public health crisis. Despite economic activity continuing to gain momentum in recent months amid ample fiscal stimulus, employment is expected to remain below its pre-pandemic levels in the short term and the sectors most affected by Covid-19-related restrictions remain fragile, although they continue to show signs of improvement. Moreover, elevated inflation, which came in notably above the Fed’s 2.0% target rate in July, is believed to be largely transitory.

Looking ahead, the Fed reaffirmed it will likely keep the target policy rate at its current level until “labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time”. That being said, the Bank noted that the economy is progressing towards its goals and the easing of its QE purchases may be warranted in the coming months. The majority of our panelists see the federal funds target rate ending this year at 0.25% and expect the first rate hike some time in 2023.

Commenting on September’s meeting, James Orlando, senior economist at TD Economics, noted:

“Heading into today's meeting, expectations were for the Fed to give further guidance on when it will taper its Quantitative Easing (QE) purchases. It hinted at it, but gave no firm direction, opting to say that a taper "may soon be warranted." Look for lots of questions being hurled at Chair Powell during the post-meeting presser. During the Jackson Hole Symposium in August, Chair Powell gave forward guidance that a tapering could happen by "year-end". Though a more precise announcement today was on the table, November is now most likely.”

The next FOMC meeting is scheduled for 2–3 November.

FocusEconomics Consensus Forecast panelists project the federal funds target rate to end 2021 at 0.25% and 2022 at 0.29%.


Author:, Economist

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United States Monetary Policy September 2021

Note: Total assets on the balance sheet of the Federal Reserve in USD billion and Federal Funds Target Rate in %.
Source: Federal Reserve.


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