Today we will be watching the minutes of the July 27-28 FOMC meeting, which we think may include more details on the timing of tapering. While …
Today we will be watching the minutes of the July 27-28 FOMC meeting, which we think may include more details on the timing of tapering. While Fed Chairman Powell did not reveal a clue about monetary policy in yesterday’s academic event; As it is a serious document in the process towards the 26-28 August Jackson Hole meetings, the tandance in the minutes will be important for us. Since the July meeting, surprises in economic data and hawkish comments on the tapering issue from Fed officials have fueled expectations that the start is near. As a matter of fact, in the upcoming calendar, we will try to draw up references such as the starting point of the tapering timing, the roadmap for reduction tranches in bond purchases, and the year of rate hikes.
Although the Fed’s assessment of the economic situation is mostly based on inflation and the employment market; The effects of the new virus wave, which creates downside risks to the economy, are also monitored. Although there are no details referenced by the Fed in its direct policy statement on Delta variant risk, and more general statements about the public health crisis are used; In the details of the minutes, we can find a more detailed assessment of this risk, which may reduce growth both in the US and globally. Reducing the Fed’s large-scale asset purchases will also be the subject of evaluation based on the economic balance dynamics that the new policy base to be created in the short term. The jobs report for July bolstered the hawkish sentiments, showing that new job gains continued to rise at a rapid pace. On the other hand, it can be expected that the Fed will not act too fast due to the increasing Covid-19 Delta variant infections and the slowing growth momentum.
So, today we will try to get two details from the minutes. First; The process of progressing the economy into the tapering stage. The factor that will create a reservation for this is, of course, mostly due to the slowing effect that the virus wave can create. As a matter of fact, this started to be the subject of consumption trends; Confidence index decline and slowdown momentum in retail sales were observed in the most recent data. Latter; In fact, it is inflation that affects consumption after a certain point. The idea of temporary inflation may be the main factor in why this issue is not much of a concern at this stage; but costs are rising. Although China’s command economy measures may provide temporary relief, especially in commodity costs, there is a shortage of supply from the source. Therefore, the effect of supply support from strategic stocks is temporary. How much the slowdown in consumption will reduce inflation is also a matter of debate, and it is necessary to weigh the center of gravity here for the tapering plan. The Fed is in the initial assessment phase of reducing its bond purchases, but there is no clear direction on timing yet. As official documents, today’s minutes and next week’s Jackson Hole’s brief conclusions are qualified ahead of the September FOMC’s critical decision.
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