Fed Watch

Federal Reserve Meeting Next Week Likely to Result In Accelerate Taper Schedule

Inflation numbers came in very hot this morning. CPI rose at an annual rate of 6.8%, which was the highest level since 1982. Food, Energy and Shelter costs were all big drivers in this report which is concerning for obvious reasons. However, Energy prices, which rose 33%, have tempered a bit recently and Used Cars were still up about five times as much as food. Most seem to think this raises the likelihood of a more aggressive taper timeline being announced on December 15th, the next FOMC meeting date.

Even since before Powell said it was time to retire transitory the yield curve has been flattening. The 2-year treasuries have gone from .46% up to .7% since October and 10 yields have moved in the opposite direction. The curve tends to flatten in anticipation of a Fed tightening cycle, and the bond market appears on the lookout for a potential abrupt response to inflation.

A majority of respondents in a poll by The Financial Times now expect tapering to be over by March. Similarly, projections for rate rises in 2022 have been rising. Ultimately, we always like to remind our readers that tapering does not constitute tightening but rather the slowing of an ultra-accommodative policy. Several of the heads of our research verticals also have commented that the Fed has ample rea...

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