Central Bank Watch Overview:
- Fed speakers sound hawkish, and rates markets have rapidly adjusted to the reality of a taper announcement in November.
- Eurodollar contract spreads and the US Treasury yield curve continue act they did in the 2013/2014 period ahead tapering beginning.
- Fed rate hike odds are discounting four rate hikes through the end of 2023.
Not Just Talking About Tapering Anymore
In this edition of Central Bank Watch, we’ll review the speeches by various Federal Reserve policymakers since the September 22 Fed meeting. There is a clear theme that has emerged in recent weeks: inflation pressures may not be so transitory after all, and that could require an immediate reduction in asset purchases which would continue at a brisk pace in the first half of 2022.
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September US NFP Could Seal the Deal
It was correctly anticipated that the September Fed meeting[2] would yield a strong hint that the taper will begin before the end of the year. However, Fed policymakers don’t seem content with just offering a strong hint: several have made crystal clear that they believe “substantial progress” has been achieved and that tapering should begin as soon as the next Fed meeting in November. If the September US NFP[3] report comes in at or better than expectations, markets will likely respond by aggressively discounting this reality.
September 24 – Powell (Fed Chair) suggests that inflation will remain elevated beyond the Fed’s prognosis earlier in the year, suggesting that he’s “never seen these kind of supply-chain issues, never seen an economy that combines drastic labor shortages with lots of unemployed people and a lot of slack in the labor market.”
Mester (Cleveland president)
