Super Powell To The Rescue?
One of the main events in the week ahead will be the first FOMC meeting of 2021. It’s amazing how much can change in a month. Back in December nobody thought the Fed would have to answer questions about tapering QE, but as of two weeks ago it’ll be a key theme going forward.
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Just taking a look at the recent economic data such as Retail Sales and jobs numbers, it’s weird to even think about something like tapering even being remotely thought about or discussed. Yet, for some more optimistic Fed members the expected economic recovery might see them ‘re-calibrate’ policy sooner.
Fed Chair Powell and wingman Clarida were very quick to explain to markets that ‘now is not the time to be talking about’ exiting QE as the recovery still has a very long way to go. However, the recent announcement of a blue sweep and further incoming fiscal stimulus, has seen a few banks upgrade their growth and inflation targets for the US.
Thus, the odds of a surprise overshoot in growth and inflation is causing some to pursue the possibility of a tapering in asset purchases by the end of 2021. Given what history has taught us from the Taper Tantrum back in 2013, I think it’s safe to assume the Fed does not want to go anywhere near that right now.
With that in mind, the FOMC meeting this week might be more of a non-event as more participants are expecting, but it could provide Chair Powell with a great opportunity to really lay it on thick and put the idea of tapering to bed.
Highlights of the video:
00:20 – Current Baseline
02:21 – Baseline expectations for the upcoming week
05:42 – Sentiment Shifts & Trade Plan
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