It was 73 degrees and sunny in #JacksonHole, Wyoming, today; a perfect day for all those who were there….
Yet, there were no #monetary policy officials present at the traditional location of the @KansasCityFed’s late-summer #economic policy symposium, since they were conducting a “virtual symposium.”
That symposium provided #ChairPowell the opportunity to lay out a reasonably sunny perspective on the U.S. #economy, but also one that was not out of the woods yet, in terms of Covid variant risk and a maximum #employment target still to be achieved.
Nevertheless, the #AverageInflationTargeting framework that was introduced at last year’s event does indeed appear to have been fulfilled, according to the Chair.
Each nuance of the Chair’s speech will be parsed for further clues regarding the #CentralBank’s plans on asset purchase #tapering, but overall, we think concerns are overstated here…
…the fact is that this debate over the precise timing of its start, of how long it takes, of whether it’s a $10 billion or $15 billion reduction in the size of purchases all seems fairly trivial when considered relative to the size of today’s #financing #markets.
For instance, on a five-year average monthly supply basis, the #financial system is pricing more than $105 billion of investment-grade #credit a month and roughly $27.5 billion of high yield supply, $32.5 billion in loans and more than $32.5 billion in #equity supply.
Further, the average gross @USTreasury coupon supply is about $370 billion per month, and recently there was roughly $60 billion 2-Year, 5-Year, and 7-Year notes issued this week alone with little fanfare. That’s $183 billion of #coupon supply in one week!
Finally, looked at another way, the U.S. Aggregate bond index adds about $200 billion of new #securities to the index every month, so in our estimation the #Fed’s asset purchase #taper discussion simply misses the point… 
…the #FinancialMarkets have grown to a size that can accommodate the reduced purchases without the need for radical adjustment.
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