However, analysts are conflicted as to whether the end of Fed’s purchases of $120 billion of assets monthly ($80 billion Treasury securities and $40 billion mortgage-backed securities) will be announced at the next Federal Open Market Committee (FOMC) in November.
“We believe the only thing that could block its tapering program would be a meaningful hiccup in the labor market or geopolitical arena,”said Thornburg co-head of investments and managing director Jeff Klingelhofer.
“In either case, we see this as a high bar for the Fed to delay its tapering plans.”
However, Tiffany Wilding, US economist at PIMCO, said there is “a risk that this is delayed until December” due to not wanting to contribute to the elevated volatility that will be created in the rising of the debt ceiling.
Increased volatility is certainly a concern for the Fed, but the reassurance that rates would not be raised soon may have eased some concerns among analysts.
“Powell stressed again that the bar for lift-off (the first rate hike) is much higher than for tapering, essentially decoupling the taper decision from the lift off decision,” reasoned Joost van Leenders, senior investment strategist at Kempen Capital Management.
“That should prevent a taper tantrum. In 2013, it was rapid changes in rate hike expectations that caused the market volatility.”