• If the Fed were basing policy solely on the employment report, then September tapering is a done deal, says BoA/Merrill Lynch
  • But, the Fed will be looking at a range of activity indicators, not just one report

Boa/ML sees 3 possible scenarios for tapering:

(1) The rest of the economy quickly converges to the employment data and the Fed starts a steady move to the exit in September.

(2) The Fed decides reduced downside risks make the case for a one-time dial down in QE, so they taper in September but then pause for an extended period waiting for clear broad-based improvement. In other words, subsequent moves are more data dependent than the first.

(3) The Fed decides to wait for broad confirmation in data and doesn’t start tapering until December.

Boa/ML favour option 3.