Thread by @RickRieder

As expected, the @federalreserve’s Federal Open Market Committee continued to discuss its plans to reduce, or #taper, the pace of its #AssetPurchase program at yesterday’s meeting.

While the details of this discussion were fairly sparse, the Committee statement did state that: “If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.”

Further, at the recent #Fed conference in Jackson Hole, Wyo., and at the press conference, Fed #ChairPowell emphasized that both he and most Committee participants now consider the test of “substantial further progress” toward the #inflation mandate to be largely satisfied.

Although some on the Committee believe there is further to go toward the goal of maximum #employment (particularly in light of August’s weaker #jobs growth, and the late-summer rise in #Covid cases).

Also, the #Fed released its Summary of Economic Projections and the primary takeaways from the standpoint of policy #rates were that the September “dot plot” suggests a slightly steeper path to rate increases…

…with 2022 median projections for the #FFR moving from 0.125% in June to 0.25% in September and 2023 shifting higher as well.

There’s been a great deal of handwringing by some #market participants over the potential market implications of the #Fed’s eventual #tapering of asset purchases, but we think it’s likely to have minimal impact.

The fact is that while real #yields are at record lows, the supply of #financial assets is at record highs, suggesting robust demand for #income: in Sept alone, $625 bn of new supply is expected across @USTreasury, credit and #equity markets; considerably greater than average.

With the demand for #income and #financial assets that we’re seeing (in combination with the enormous stock of #liquidity in the system), the modest tapering likely to be seen from the Fed is not consequential for markets.

Critically, #MonetaryPolicy in recent decades has been a tool used to spur demand higher, but the main problem today is a #SupplyShortage, not weak demand, and supply can’t be “stimulated” by #monetary policy.