Fed Approaches Agreement to Begin Tapering in November... Companies Start Stockpiling Cash

WSJ Reports Increased Possibility of Fed Tapering This Year
Companies Stockpile Cash to Respond to Crisis
Growing Risk of Consumer Slump Due to Delta Variant Spread
US Treasury Yields Plunge Again

Jerome Powell, Fed Chair [Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Reports have emerged that members of the U.S. central bank, the Federal Reserve (Fed), have reached an agreement to begin tapering asset purchases in November. As tapering approaches, analyses are also appearing that consumers and businesses are preparing for the possibility of a global economic slowdown due to the spread of the Delta variant.

"Fed Approaching Agreement on November Tapering"

The Wall Street Journal (WSJ) reported on the 16th (local time) that given the surge in inflation and strong employment data in June and July, the Fed may announce its tapering plan at the September Federal Open Market Committee (FOMC) meeting and could start tapering as early as November.

Some Fed officials are reportedly pushing to complete the tapering process by mid-next year.

The WSJ report came ahead of the July retail sales announcement scheduled for the following day and remarks by Fed Chair Jerome Powell. The minutes of the July FOMC meeting, to be released on the 18th, are also likely to provide hints about tapering.

The Jackson Hole symposium, held from the 26th to 28th, is another important stage where tapering could be mentioned.

Within the Fed, those advocating for early tapering include Raphael Bostic, President of the Atlanta Fed; Eric Rosengren, President of the Boston Fed; Charles Evans, President of the Chicago Fed; and Robert Kaplan, President of the Dallas Fed.

Dovish officials such as Chair Powell, Fed Governor Lael Brainard, and Mary Daly, President of the San Francisco Fed, have drawn a line against implementing tapering within this year.

The WSJ analyzed that despite recent tapering warnings, unlike in 2013, emerging market financial markets have not been shocked, and the decline in U.S. Treasury yields could also encourage the Fed’s decision.

U.S. Treasury yields recently fell to 1.127%, but after strong U.S. employment data pushed yields above 1.3%, they dropped back to the 1.2% range on the day. This reflects concerns about the Chinese economy.

Economic Indicators Show 'Red Flags' Amid Delta Spread... Companies Stockpile Cash

The economic contraction caused by the Delta variant and rising commodity prices is a concern not only for China but also for the U.S. and governments worldwide. On this day, China’s July retail sales increased by only 8.5%, falling short of the market expectation of 11% growth. This pulled down U.S. Treasury yields and international crude oil prices.

The sharp drop in the U.S. consumer confidence index announced last week was seen as a barometer for future economic conditions. It signals that consumers, wary of the Delta variant’s spread, are likely to tighten their wallets.

The WSJ reported that signs of a U.S. economic slowdown are already being detected. According to SafeGraph, sales at retail stores such as grocery stores, gas stations, gyms, and restaurants have declined since the end of July. The number of domestic U.S. flights has also decreased.

If the U.S. retail sales data released the following day are weak, concerns about economic contraction could intensify.

Companies are also building up strength to prepare for future crises. The WSJ cited data from S&P Global showing that globally, the amount of cash-like assets held by companies has reached a record high of $6.84 trillion. This is 45% higher than the five-year average before the COVID-19 pandemic and a 2.6% increase from the previous quarter.

JPMorgan Chase also forecasted that global corporate capital expenditures will increase by only 5.8% annualized in the third quarter, down from a previous estimate of 12.9%. JPMorgan diagnosed that some economic indicators are showing red flags and that the Fed’s impending tapering is encouraging companies to stockpile cash.

This content was produced with the assistance of AI translation services.