All about the taper
The taper question — when the Fed will ease off the economic stimulus gas pedal — has been on investors’ minds for months.
Even though every investor under the sun will be listening for any and all taper talk at the end of the week, those hoping for groundbreaking revelations might wind up disappointed.
“We expect the September FOMC meeting to be the main event where Powell more substantially sets the predicate on tapering, not Jackson Hole,” said RSM Chief Economist Joe Brusuelas.
For the Fed, waiting at least until next month has its benefits, including another look at the labor market with next week’s jobs report. Another strong report could strengthen the case for the tapering to get going.
Is inflation here to stay?
But even if Powell doesn’t set a firm date for tapering on Friday, there is still plenty he could clarify.
Although the Fed is still mostly on the transitory train, the July meeting minutes noted that several officials believe the worse-than-expected supply chain disruptions could keep pressure on prices into next year.
So which one is it? Transitory, or not really? Wall Street investors are hoping Powell and other Fed officials will shed a little light on the issues Friday.
Low yield world
The Fed’s monthly asset purchases have kept bond yields low for the most part. Buying $80 billion worth of Treasury securities every month will do that.
So what might happen when the Fed scales its monthly buys?
“With less central bank buying, bond yields will likely rise globally, but not too much,” said John Vail, Chief Global Strategist at Nikko Asset Management.
From a stock market point of view, it could be a reason for cyclical and financial stocks to perform well, Vail added.