Fed Watch

Federal Reserve Announces More Aggressive Taper Schedule, Purchases To Be Over By Mid-March, Transitory Retired

As most Fed-watchers expected, the persistently high inflation numbers and building hawkish chorus on the committee resulted in the FOMC shifting course and speeding up the pace of the tapering of asset-purchases. Inflation has been persistently above the targeted levels. This coupled with improvements in the labor market appear to have made the FOMC willing to speed the pace of decline in what has been the most accommodative posture in the history of the world’s most important central bank.

The committee changed its inflation outlook to get more in line with what the actual numbers have been and also reduced the projected level of unemployment for YE. The Fed’s narrative has shifted from fighting the pandemic to fighting a more persistent than anticipated inflationary pressure.

As Mr. Powell noted, even though he still believes much of the positive pressure is related to supply chain interruptions and unique factors caused by the pandemic, the danger of inflation expectations causing a dangerous self-fulfilling prophecy is real. The term transitory was officially removed from the FOMC statement in a coup de grace for the faithful and contreversial term.

The action was initially received warmly by markets but this didn’t last. Technology took a bit a hit as much o...

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