It will come down to the data
A stream of hawks speaking ahead of Fed Chair Jerome Powell made some in the market worry that the Fed chair would brush aside the delta variant and tee up a taper.
Instead, he seemed to cast doubt on whether a taper at all this year was a good idea.
At the FOMC's recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year. The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant. We will be carefully assessing incoming data and the evolving risks.
That's not exactly a strong hint on what's coming next but it does offer some clues. For one, the lack of any nod towards a sooner taper takes September off the table. Just today, the Fed's Bullard was lobbying to start it in September. If that was coming (which certainly isn't the baseline) then Powell would have had to offer a strong hint today.
So it's clear the taper won't be rushed.
If the data is strong and delta clears up, there's a chance for a hawkish turn at the Sept 22 FOMC but we'll just after to wait and see what the numbers are. Next week we get consumer confidence, the ISM surveys and non-farm payrolls so it will go a long way towards determining what comes next.
For now though, the risk of a sudden hawkish turn from Powell is gone and that's a boon for risk assets. The S&P 500 is up 30 points while the US dollar is near session lows across the board.
There's a nice double top in USD/CAD working its way out on the short-term chart:
