Tapping on the Monetary Brakes – June 16th, 2021
At the height of the pandemic, Fed Chairman Jerome Powell said the Fed was not even “thinking about thinking about raising interest rates.”
That may still be the case. But the recent jump in inflation may have the Fed thinking about its $120 billion in bond purchases it makes each month.
In 2013, the Fed announced a detailed plan to cut back, or taper, its bond buys.
- Investors were temporarily rattled. The resulting turmoil was dubbed a “taper tantrum.”
Today, the Fed has said it wants to see “substantial further progress” toward its maximum employment goal before tapering.
- It’s a high hurdle.
Bottom line
Might we see a shift in the Fed’s language at this week’s meeting? Will recent high inflation readings force the Fed to blink?
Fed officials have publicly insisted that the recent spike in inflation is temporary. It’s tied to pent-up demand and the reopening of the economy.
When the Fed announced its tapering plan in 2013, the S&P 500 Index1 lost nearly 5% in four trading days before quickly recovering (St. Louis Fed data).
No two cycles are exactly alike, and short-term market forecasts are fraught with uncertainty.
However, investors with a long-term time horizon and a well-diversified financial plan based on their goals have historically weathered short-term volatility that sometimes affects market action.
Created 2021-06-16 14:29:15
