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Thursday, June 17, 2021

The tapering conversation has begun.

One of the most unique phrases the Federal Reserve has ever used to communicate with markets has been retired.

At least according to Federal Reserve Chair Jerome Powell.

Asked Wednesday during a press conference about whether the Fed discussed plans to begin slowing down its pace of asset purchases, Powell confirmed that at this week's policy meeting, the central bank began "talking about talking about" changing this program.

"I expect we'll be able to say more about the timing [of tapering asset purchases] as we see more data," Powell said Wednesday. "There's not a lot more light I can shed on that. But you can think about this meeting as the talking about talking about meeting, if you like. And I now suggest that we retire that term, which has served its purpose well."

For months now, Powell and other Fed officials have reiterated that they both were not "talking about talking about" tapering asset purchases — which are still running at $120 billion per month, according to the Fed's statement on Wednesday — nor were they "thinking about thinking about" raising interest rates. But now that the talk about tapering asset purchases has begun, chatter about quantitative easing (QE) among the media and Wall Street Fed watchers can shift from words to deeds.

The biggest market-moving development out of the Fed's announcement was a change in its "dot plot," outlining expectations for interest rates. That data series now suggest up to two rate hikes by the end of 2023 could be warranted. Previously, this plot had shown only one hike would likely be necessary in 2023.

As Yahoo Finance's Brian Cheung notes, Powell sought to downplay the importance of this data in his press conference, saying — among other things — that the dot plot should be taken with a "big grain of salt." Powell's desire to move investor focus off of this single data point did little to sway markets that sold both stocks and bonds in response to this news.

As for when the Fed's talk on tapering will turn into action, attention now turns to the Fed's annual economic symposium in Jackson Hole, set for late August. Gregory Daco at Oxford Economics said Wednesday that "consensus expectations" are that Powell will signal at that meeting a change in the Fed's asset purchase program may be warranted early next year.