The Federal Reserve is getting ready to pull "the punch bowl." That's the phrase some investors use for the bond-buying stimulus program initiated to help stabilize the markets after the start of the pandemic last year. At its meeting last week, Federal Reserve Chair Jerome Powell and fellow members signaled they will begin cutting back, or tapering, bond-buying by the end of the year now that the economy is again growing at a healthy rate.
KTRH Money Man Pat Shinn with Heritage Asset Advisors believes the tapering is inevitable. "Second quarter GDP growth put the U.S. economy back above its pre-pandemic high, so we don't need this kind of stimulus," he tells KTRH. "We do think the Federal Reserve is going to begin to slowly unwind their bond buying program...they'll initiate it sometime between now and the end of the year."
Even though the economy is growing at a strong clip, rising inflation is still a concern moving forward. The Fed could eventually elect to raise interest rates to offset inflation, but Shinn doesn't expect that to happen anytime soon. "Chairman Powell said the criteria for unwinding the bond buying is a different set of criteria for when they're going to raise interest rates," he says. "So even though the Federal Reserve will continue to unwind their bond buying program, we are a long, long, long, long ways off before they're ever going to raise interest rates."
"And even when they do raise interest rates, they're not going to be able to raise them hardly at all, because as things normalize I think we're going to get back to a more slow and steady economy," Shinn continues. "Nothing like the numbers that we're seeing now."