Is Fed taper coming or not?

Is Fed taper coming or not? Goldman says it is. Or does it?

  • The Fed’s Jackson Hole Economic Policy Symposium will take place this Friday. The theme of the conference is “Macroeconomic Policy in an Uneven Economy.” Chair Powell will give a speech on the economic outlook at 10am EST on Friday that will be broadcast online.
  • We think the FOMC’s intention is to formally announce the start of tapering at the November FOMC meeting if all goes well by then, and to taper at a pace of$15bn per meeting. We see a 45% chance that the formal announcement will come in November, a 35% chance that it will come in December, and 20% chance that it will be delayed until 2022. We put high odds on a delay beyond November because of the downside risk posed by the Delta variant.
  • We expect Chair Powell to acknowledge both the strong employment gains inrecent months and the downside risks posed by the Delta variant. This wouldkeep expectations on track for a potential September warning and Novembertaper announcement, but would carefully avoid locking the FOMC in to that timeline.

That is about right. I expect the Fed to waffle all around the question:

  • The US economy is slowing.
  • The labour market is distorted and confused.
  • Inflation will ebb away on base effects and commodity prices.

Moreover, China is still in a determined reformist phase that will dramatically slow its growth by year-end, and the last point is likely to continue.

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