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The release of the Federal Open Market Committee meeting minutes this week may offer further clues on when and how the Federal Reserve (Fed) will begin to wind down its $120-billion-per-month purchase program of Treasury and mortgage-backed securities. As the economy continues to improve, the asset purchase program will be slowed down (tapered) prior to any increases in interest rates. The pace of tapering will likely be viewed by the market as when the Fed sees the ability, given the economic recovery and inflation outlook, for it to begin raising interest rates.
I expect the Fed to begin tapering its asset purchases in the fourth quarter of this year, and to conclude them by the end of 2022. The rate and pace of the wind-down has the potential to impact asset prices of all types as the reduction in stimulus reverberates through the economy. I expect market volatility to pick up as stimulus is removed.
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