Week Ahead: Fed To Talk Taper But Stall On Action
XM Group | Jul 23, 2021 09:20AM ET
The Fed’s search for “substantial further progress”
It goes without saying that the July 27-28 FOMC meeting will be next week’s highlight as it will be the Fed’s last chance to telegraph any potential tapering announcements either at the Jackson Hole symposium in August or the September policy meeting. But when it comes to the July gathering, it was always going to be a tricky one because policymakers clearly want to see more data before making up their minds on tapering but, at the same time, they need to get the ball rolling, at least on holding some preliminary discussions about the timing and pacing of any reduction in their asset purchases.
Complicating matters even more is the escalation in virus cases due to the highly contagious Delta variant of Covid-19, which has now become the dominant strain in the United States. Caution about the growth impact from the Delta variant could widen the divisions within the FOMC on how soon the $120 billion a month in QE needs to be pared back. However, those details will probably not be disclosed until the minutes and all we might get on Wednesday about a looming taper decision is how much closer the Fed is to achieving “substantial further progress”.
With the ECB doubling down on its pledge to lift inflation sustainably to 2%, the prospect for euro/dollar is looking a bit grim right now. There might be some cheer for the pair however, from the preliminary GDP readings for the second quarter. Eurozone growth likely bounced back by 1.5% over the quarter in Q2 after contracting by 1.3% in the previous quarter.
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