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After today’s meeting of the Federal Reserve’s Open Market Committee the U.S. central bank said it would start slowing the pace of its monthly $120 billion in asset purchases this month. The slowdown would take place at a rate of $15 billion a month, which implies an end to the program by the middle of 2022.

Currently the Fed buys $80 billion in Treasuries and $40 billion in mortgage-backed assets each month. The $15 billion monthly reduction would be split between $10 billion for Treasuries and $5 billion for mortgage-backed assets.

The news was essentially what financial markets had expected with what drama there was centering on whether the Fed would begin the taper in November or December. Before the meeting the Dow Jones Industrial Average had been down 0.4% and the Standard & Poor’s 500 off 0.15%. As of 2:50 p.m. New York time the Dow wa ahead 0.12% and the S&P 500 ha gained 0.41%.

The one bit–maybe–of unanticipated news in the Fed’s news release was an apparent and very slight shift in the central bank’s assessment of inflation. at least three times by the end of 2022. Those expectations ratcheted up in the four weeks leading up to the Fed’s taper announcement. The Fed has argued that the current high rate of inflation–at an annualized 4.4% in the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index–was transitory. Today the Fed emphasize how difficult it is for the Fed to predict how long inflation will last.

The financial markets are way less convinced that inflation is transitory and way more convinced that the Fed will move to raise interest rates beginning in the middle of 2022. The CME’s Fed Watch, which tracks market interest rate expectations by looking at prices in the Fed Funds Futures market, sees almost no chance of an interest rate increase before May. In that month, however, odds of an increase rise to 32.6% and then to 64% in June. In July the Fed Watch odds start to point to a second interest rate increase with a 25.1% chance of two increases in July and then a 49.8% chance of two increases in September. In November expectations start to include the possibility–at a 20.4% chance–of a third interest rate increase.

Today’s announcement of a reduction in asset purchases is an important indicator of the pace of interest rate increases since the consensus is that there won’t be any interest rate increase until the Federal Reserve ends its assert purchases.

The end of monthly asset purchases will do nothing to shrink the Fed’s bloating balance sheet–now at $8.5 trillion after the cash infusions to “fix” the global financial crisis and to head off a Pandemic recession. For reference the Fed’s balance sheet was at “just” $2.5 billion in 2011.