Federal ReserveObviously, the Fed did not raise rates today, and Chairman Powell did, indeed, use the “talking about talking about” QE-tapering language. The Fed says they are looking at 2023 as when the first rate hike will come. The entire presentation was completely dovish, and can only be interpreted as hawkish by someone who believes the Fed is actually going to say things they are never, ever going to say.We know the Fed said they wanted to see “substantial progress” in the economy and their policy goals before tightening monetary policy. We now know that the Fed very much sees price volatility in lumber, used cars, airfare, and so forth as part of a re-opening imbalance, and something they need to “see through” (I essentially agree with them on this part).We know the Fed’s mandate is “full employment.” We have over 9 million unfilled job openings. We now know the Fed sees the job market making huge progress, but a ways away from full employment.Of course, we know the other part of the Fed’s dual mandate is “price stability.” I believe quantitative easing was to ease financial conditions at the onset of the pandemic. Fair enough. Financial conditions appear to have loosened, wouldn’t you say?FINANCIAL CONDITIONS INDEX *Bloomberg, Boock Report, June 16, 2021So what the Fed said today about Quantitative Easing (QE) is basically that they are talking about altering their QE operations at some point. Solid stuff. My predictions:At the next meeting, they say they will have some plans at the meeting after that.In two meetings they will say they are stopping the purchase of Mortgage Backed securities after one more meeting.The meeting after that they announce they are still buying Treasuries.The meeting after that they announce a term spectrum change in the Treasury purchases.And then the meeting after that they will announce a modest tapering of treasury purchases. |
