The Fed is not expected to take any policy actions after its meeting this week, but it is likely to signal that it is thinking about them.
Tapering the bond program is important because the beginning of the end of its so-called quantitative easing signals the Fed would be on the path to eventually tighten policy - or raise interest rates. The Fed began purchasing Treasurys and mortgage securities last year as a way to provide liquidity when the economy shut down.
But Goldman Sachs economists say it is too soon for the Fed to 'talk about talking about tapering' even though some Fed officials would like to begin the process. Officials at the core of the Fed - Governor Lael Brainard and New York Fed President John Williams - do not. "It may become increasingly difficult for Powell to dismiss [inflation] as expected," said Cabana. "He's likely to say 'We're monitoring it...We still believe it will be transitory but we're going to be monitoring the data very closely.'"
The Fed presents its inflation forecast on a so-called 'dot plot,' with anonymous entries for each Fed official. In March, the dot plot showed a split of 11 to 7 against a 2023 hike. JP Morgan economists expect several Fed officials to change their position and support a 2023 hike. They also changed their own rate forecast to a rate hike in 2023.
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