Highlights of the November 3, 2021 FOMC statement
- Fed funds held at 0%-0.25%, as expected
- Cut in pace of Treasuries $10B/month vs $10B/month expected
- Cut in pace of MBS $5B/month vs $5B/month expected
- Taper will begin in mid November
- Another $15B/month of tapering pre-announced for mid-Dec
- Says 'committee anticipates similar reductions' in the pace of QE each month but prepared to adjust if warranted
- Says that "Inflation is elevated, largely reflecting factors that are expected to be transitory" versus "largely reflecting transitory factors"
- Summer rise in covid slowed the recovery in sectors
- "Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors."
- Economic activity and employment have continued to strengthen
- There are no new projections this month
- Chairman Powell will hold a press conference at the bottom of the hour
The Fed stuck with the 'transitory' language that some thought would be removed but added a bit of humility to the language saying that it was 'expected' to be transitory.
The December decision didn't necessarily need to be pre-announced ahead of the Dec 15 decision but that would have cut it close.
I'm curious about the new line on 'supply and demand imbalances' leading to sizeable price increases in some sectors and how Powell might expand on that.
I was looking for some balance on flexibility versus predictability on the QE runoff. They leaned towards flexibility by saying it could change. At the same time, it's only a slight lean because they forecast 'similar' tapers each month.
Aside from some initial chop, the market reaction has been modest in FX. Keep an eye on bonds for a clue on what comes next. Long-dated yields are moving up and short-dated are moving down. That reflects a slower pace of hikes.
