As Fed tiptoes around tapering, investors look to Jackson Hole meeting for clarity
Investors looking for clear guidelines on when the Federal Reserve will begin tapering its massive bond purchases were left waiting Wednesday, with all eyes next on the annual Jackson Hole conference of central bankers in August.
The central bank has been buying $120 billion in fixed income assets per month - $80 billion in Treasuries and $40 billion in mortgage-backed securities - to support the economy as it recovers from the impact of the coronavirus pandemic, and markets have been fixated on when the Fed will start tapering.
Powell said in June that there had been initial discussions about when to pull back.
Some analysts such as Brian Rose, senior economist, Americas at UBS Global Wealth Management believes the Fed could announce tapering in December.
The market reaction to the Fed's policy statement was muted.
Fed Fund futures , a widely used security for hedging short-term interest rate risk, have fully priced a 25-basis point tightening by the first quarter of 2023, unchanged from prior to the release of the Fed statement.
"We didn't expect this policy decision to cause too many waves and that’s exactly what it's looking like," said Ryan Detrick, senior market strategist at LPL Financial. "The Fed is seeing improvement in the economy, but the economy still needs assistance they're going to leave rates where they are."
Still, some see risks ahead as the Fed prepares eventually to start raising rates.
Some, however, said the Fed needs to be more direct in communicating its plans to pull back its emergency-level support of financial markets.
"Tapering in a deliberate manner ... is now so insignificant to the size of financial markets that not outlining a plan is more confusing than just putting one out there for markets to react to (or not)," noted BlackRock's Rieder.
Reference: Reuters
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