Good Thursday Afternoon,
The bond gods are smiling after yesterday’s Fed announcement that the taper would start right away but there are no rate hikes in sight (at least for now). A deeper dive from the WSJ is below, but this is a great opportunity to lock in advance of tomorrow’s jobs report, which if it follows ADP’s blockbuster number yesterday, has a good chance to take away today’s gains.
The Federal Reserve approved plans to begin scaling back its bond-buying stimulus program this month and end it by June. The move is a major step toward withdrawing its aggressive, pandemic-driven economic support amid a recent inflation surge, which has prompted many finance chiefs to raise prices. Fed officials in their postmeeting statement Wednesday said they still anticipated elevated inflation would fall because high readings are “largely reflecting factors that are expected to be transitory.” The Fed cut its short-term benchmark rate to near zero when the coronavirus pandemic hit the U.S. economy in March 2020. It held rates at that level on Wednesday.
The Fed is paying very close attention to signs that consumers and businesses expect higher prices to continue rising—or what is referred to as the “un-anchoring” of inflation expectations.
The Fed places tremendous importance on inflation expectations because it believes they can become self-fulfilling. Officials have based their forecasts that high inflation would abate on its own because it has been closely related to the pandemic, which they likewise expect to have a beginning, middle, and end.
Please remain safe and healthy, make today great!