London (CNN Business)Six weeks ago, the Federal Reserve was sending signals that it was time to start backing away from crisis-era support for the US economy.
"It's not clear to me that we're really doing anything useful here," St. Louis Federal Reserve Bank President James Bullard said on Aug. 10 of the Fed's $120 billion in monthly bond purchases.
Dallas Fed President Robert Kaplan agreed. "What I don't want to do is keeping running at this speed for too long, and then we're going to have to take more aggressive action down the road," he told CNBC around the same time.
But the picture has changed since then, and when the Fed makes its latest policy announcement on Wednesday, it's expected to reiterate that for now, at least, it's sitting tight.
"A no change decision at the upcoming [Fed] meeting looks a foregone conclusion," ING strategists wrote in a recent note to clients, pointing to Chair Jerome Powell's remarks at the Jackson Hole symposium last month, which indicated that the central bank is not in a rush to change course.
Breaking it down: Inflation is still running hot. The Personal Consumption Expenditures Price Index, the Fed's favorite measure, rose at a rate of 4.2% in the year ended July, the fastest pace since January 1991. That's more than double the central bank's 2% target.
This month, a number of companies have revised down their earnings expectations as a result of higher prices. PPG (PPG), which makes paints and coatings, said third quarter sales volumes would be $225 million to $275 million lower, citing supply chain problems and raw material inflation. Competitor Sherwin-Williams (SHW) made a similar announcement.
Some economic data also indicates the US economy is powering through the impact of the Delta variant. Counter to expectations, US retail sales increased last month as consumers shelled out on clothing, furniture and groceries.
Taken together, inflation readings and signs of economic resilience should be encouraging the Fed to act sooner rather than later. But Wall Street now thinks the central bank will make this call in November, with the tapering of bond purchases starting by near end.
Why? Simply because the situation remains murky. In August, spending at restaurants was flat month-over-month, indicating Delta concerns are having some effect on consumers. And the most recent US jobs report showed that just 235,000 positions were added in August, a major disappointment.
"Ultimately, the determination of the decision on tapering likely comes down to the pace of labor market improvement over coming months," Ellen Zentner, Morgan Stanley's chief US economist, said in a research note. She thinks the Fed will delay a tapering announcement until December so it can parse more jobs data.
Watch this space: With agreement that the Fed is on hold for the time being, the most market-sensitive moment of Wednesday's announcement is likely to be the release of the central bank's latest economic forecasts, as well as its "dot plot," which tracks expectations for when interest rate hikes will kick in.
In the last update, seven out of 18 Fed officials said rate increases would likely start in 2022. ING thinks it's conceivable that "one or two more bring their forecast forward" to next year. "We suspect the median stays at 2023 for now, but it will be a close call," the bank predicts.