The Fed: Some puzzles left behind after Fed Chair Powell’s press conference

As expected, the Fed announced it was slowing down its bond purchases by $15 billion per month starting in mid-November. At this pace, the $120 billion in purchases will end completely in June.

Powell’s tone suggested no rush to raise interest rates soon after tapering concludes, but also a willingness to act promptly if necessary, said Jim O’Sullivan, chief U.S. macro strategist at TD Securities.

“We don’t think it’s time to raise rates now. If we do conclude it’s necessary to do so, we will be patient, but we won’t hesitate,” Powell said.

Walking a fine line also means the chairman skirted some minefields and tough questions. Here are some of the puzzles that remain in the wake of his press conference:

The outlook for economic growth

Powell was particularly mum about his forecast for U.S. gross domestic product in 2022. His prepared remarks only mentioned the expected pickup in growth in the current October-December quarter. Economists aren’t worried about this quarter — but some doubts are emerging about growth next year.

With the focus on “inflation, inflation, inflation, there wasn’t much time to cover much else,” said Jeffrey Cleveland, chief economist at Payden & Rygel Investment Management. Some of the spending we’ve seen were driven by fiscal stimulus and pandemic-related buying, he said. “If the pandemic ends and transfers won’t repeat, wouldn’t growth slow?” he asked.

What would it take for the Fed to accelerate the wind down of bond purchases?

In its statement, the Fed said the committee expects the $15 billion monthly reduction pace in bond-buying will “likely be appropriate each month” but left the door open for a faster pace by not setting the actual pace beyond December.

Asked what it would take the Fed to deviate from the $15 billion per-month path of tapering., Powell demurred, saying: “I’m not going to give you a lot more detail.”

Diane Swonk, chief economist at Grant Thorton, said she thinks the Fed has been growing more divided since the summer. She sees the hawks pushing to accelerate the pace of purchases in early 2022. “This will open the door to sooner and more aggressive rate hikes. We now expect three rate hikes next year,” Swonk said, in a note to clients.

A clean look at the economy post-delta variant

During his press conference, Powell said he was waiting for the delta variant of COVID-19 to subside to get a good read on the economy.

But that might be wishful thinking, said Michael Feroli, chief U.S. economist at JP MorganChase.

“I’m not so confident we’re going to get a clean picture of the economy in the next couple of months. Powell has a little more optimism in that regard than I do,” Feroli said in an interview with Bloomberg. He noted that the coronavirus was starting to pick up a little in northern states as the weather grows colder.

In the end, the market was unmoved

Despite Powell’s dovishness, the market didn’t change its expectations for rate hikes after the meeting, noted Robert Perli, head of global policy at Cornerstone Macro.

Read: Fed still thinks surging inflation is transitory but it’s hedging its bets

“It will take demonstrably lower inflation to persuade the markets to walk back its expectations, and that will take time,” Perli said, in note.