Central Bank Watch Overview:
- The tone around the early-October theme strengthened over the course of the month: inflation pressures may not be so transitory after all
- Eurodollar contract spreads and the US Treasury yield curve are offering their strongest hints thus far that a more hawkish Fed is about to arrive.
- Fed rate hike odds are discounting five rate hikes through the end of 2023, with a 49% chance for six 25-bps rate hikes altogether.
On the Cusp of a More Hawkish FOMC
In this edition of Central Bank Watch, we’ll review comments and speeches made by various Federal Reserve policymakers in mid-October prior to the pre-meeting communications blackout window going into effect. The tone around the early-October theme strengthened over the course of the month: 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.
For more information on central banks, please visit the DailyFX Central Bank Release Calendar.[1]
Taper Announcement a Done Deal
The 3Q’21 US GDP report may have proved disappointing in some respects, but not enough to have dissuaded policymakers that it’s now time to taper. Throughout October, several Fed policymakers suggested that they believe “substantial progress” has been achieved, and in context of persistently higher inflation pressures, that tapering should begin as soon as possible.
October 13 – September FOMC[2] meeting minutes summarized that “participants noted that if a decision to begin tapering purchases occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December.”
October 14 – Bullard (St. Louis president) commented on elevated inflation readings, noting that “while [he does] think there is
