The Fed Accelerates Tapering, But Will It Like The Market?

Well finally Jerome Powell made his announcement:

• They decided to double the pace of reduction in asset purchases to $ 30 billion per month (comprised of $ 20 billion in Treasury, $ 10 billion in MBS, mortgage backed securities, this will double again in January, with similar reductions likely appropriate every month thereafter), which will lead to finalizing the purchase of public debt in March;
• His updated projections now see three rate hikes in 2022, revising his view from a hike predicted at the September FOMC (in September the Federal open market committee was essentially split on the potential need for a second rate hike in 2022); in the long run, however, he left his view of the final interest rate unchanged;
• Inflation forecasts have been revised to 2.6% for the PCE (Personal Consumption Price Index) by the end of next year (previously it was 2.2%), while the main measure of inflation (PCI) is expected to 2.7% by the end of 2022 (prev. 2.3%). In short, more inflation is expected.
• On the job market, the Fed sees the unemployment rate return to 3.5% next year (the previous forecast was 3.8%), where it is likely to stay beyond the forecast horizon.

So, more or less Jerome Powell said what the market was expecting. after all, with inflation forecasts rising and unemployment forecasts falling, it must stop the monetary stimulus. But how will the market react to this choice?

It hasn't gone particularly well so far. The spread between 2-year and 30-year bonds collapsed.

The reversal in rates is a sign of an impending crisis. In this case, the crisis is reported between 2022 and 2023. But perhaps it is only a temporary signal. Perhaps.

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Article The FED Accelerates Tapering, But Will It Like The Market? comes from ScenariEconomici.it .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-fed-accellera-il-tapering-ma-gradira-il-mercato/ on Thu, 16 Dec 2021 07:00:36 +0000.