The Fed has revealed its Pulcinella secret

Tapering of the Fed's quantitative easing program will begin this month. The analysis of Jon Day, Newton's global bond manager (BNY Mellon Investment Management)

The Federal Reserve revealed its Pulcinella secret last night: the tapering of the QE program will begin this month, with a cut of 15 billion dollars in securities purchases and as many billion for each month to come, until the complete closure of the plan by June next year.

Nonetheless, the Fed has retained the flexibility to increase or decrease the cuts depending on the economic data: that is, based on how transient inflation will actually prove to be. The Fed has thus taken the first small steps towards a more aggressive stance but still lags behind peers across the border (the Bank of Canada), the Ocean (the Bank of England) and the antipodes (the Reserve Bank of New Zealand), therefore investors will have to keep their patience.

Price data in the United States is up, with the Institute of Supply Management (ISM) Services Index at an all-time high, and 10-year inflation expectations above 2.5% (the unofficial Fed level to identify "hot" inflation). The risk remains that the Fed will move faster than it expects itself, making short-term yields vulnerable. The US dollar, on the other hand, would be the main beneficiary of this scenario.

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This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/fed-tapering-quantitative-easing/ on Thu, 04 Nov 2021 14:53:30 +0000.