There will be no prizes for guessing what today's Daily Update relates to.
As widely expected, the Fed announced plans to start tapering from this month 'in light of the substantial further progress the economy has made toward the Committee’s goals since last December’. The central bank will cut purchases of treasuries by USD10bn and mortgage-backed securities (MBS) by USD5bn a month. The net total for November will be USD70bn and USD35bn for Treasuries and MBS, and the same reduction for December.
In the statement following the meeting it was noted that the Fed expects to make similar adjustments in later months, however, would be open to varying the pace of tapering if conditions merit. ‘The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook’ the statement said.
Interestingly, the statement mentioned specific purchase targets for November and December, but not beyond. On market pricing of rate hikes, Powell said lift-off will be dependent on the economy and they will not hesitate if a response is called for on tapering,
The Fed’s statement did include some slightly adjusted language on inflation. The Fed now says that Inflation is high ‘largely reflecting factors that are expected to be transitory’, whilst noting ‘Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors’. So, a slightly more defensive stance, however not exactly earth shattering.
In the press conference, Powell defended a transitory inflation outlook, however, he did concede that supply disruptions are taking longer to normalise than he or indeed anyone else expected. He believes that they will see inflation moving down by ‘the second or third quarter’ One notable line from Powell’s prepared remarks was the admission that ‘Our tools cannot ease supply constraints’, but then again we don’t think anyone believes they did have any anyway.
Overall, there were no fireworks, (unlike the RBA last week) and we didn’t get anything from this meeting that we were not expecting. Chair Powell and the Fed delivered on a very well telegraphed taper while only slightly adjusting its language on inflation concerns.
Also, we read that Boeing will finally stop making the ‘Queen of the Skies’ after more than 50 years of unbroken production. The last 747-8 jumbo freighter will be delivered to the freight company Atlas Air next year. At the beginning of this year just 435 of the 1,572 747s ever built remained in operation worldwide. The majority of those being freighters, with Atlas Air being the biggest operator with 40 of them.
Enjoy your day. Tomorrow is the first Friday of the month, so again there will be no prizes for guessing what we will be writing about.