RE: POG not helping23 Sep 2021 16:48
The Federal Reserve avoided a shock to equities in an already weak September, but will investors remain comfortable with the hawkish tilt?
As expected from its decision yesterday, members pulled forward rate-hike expectations on the dot plot. And Fed chief Jay Powell telegraphed a tapering announcement at the next meeting in November. Tapering is expected to end around mid-2022 and liftoff could occur after that, although 2023 still seems the most likely timing for the start of rate hikes for now.
"What is clear is that inflation is likely to be the determining factor for liftoff and the pace of rate hikes," Deutsche Bank Chief U.S. Economist Matthew Luzzetti writes in a note. "If inflation is at or below the Fed's current forecast next year of 2.3% core PCE, liftoff is likely to come in 2023, consistent with our view. However, if inflation proves to be higher with inflation expectations continuing to rise, the first rate increase could well migrate into 2022."
Scott Ruesterholz, portfolio manager at Insight Investment, is expecting a gradual liftoff and notes the Fed "is expecting inflation to run above 2% through 2024 even as they keep rates below their neutral 2.5% estimate." "That shows how committed they are to fostering as strong of a labor market recovery as possible." But was also the discussion and debate about asset purchases and how to communicate a taper within the FOMC and the markets a waste of energy?
"All the time spent deliberating on prospective tapering, and the hours of market-participant focus on it, could be much more efficiently spent elsewhere," Rick Rieder, BlackRock CIO of Global Fixed Income writes. "We have argued for some time now that the economic conditions were ripe for a more normalized monetary policy, and that this, in fact, could mitigate the possibility for rising unintended consequences that could risk undermining the recovery that the Fed helped to engineer."
Sign In
Follow the stocks
