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Super central bank week and political week are coming! The Federal Reserve may give the latest Taper signal.
Sep 20,2021 18:23CST

The Fed's September FOMC meeting, which will be held on Tuesday (21st) and Wednesday (22nd), is crucial, with the Fed releasing its latest economic forecasts and bitmap of interest rate hikes. Although the window available for the Fed to send a September Taper signal has been closed, the meeting could hint at whether the Taper will make an announcement in November or December.

This week is the super central bank week led by the Federal Reserve, and the central banks of Japan, Britain, South Africa, Turkey, Switzerland, Norway and Sweden will also announce interest rate decisions this week. Markets expect Norway to raise interest rates by 25 basis points this week, Hungary by 25 basis points, Brazil by 100 basis points, and most other central banks may stand still.

Local time Wednesday (22), the Federal Reserve FOMC meeting will announce the September interest rate resolution, Federal Reserve Chairman Colin Powell will hold a press conference after the announcement of the interest rate resolution.

At this meeting, the FOMC will assess the latest progress in the economy, and the August inflation data are likely to be the focus of debate among policy makers after August's job growth was much lower than expected. The FOCM is expected to discuss Taper, and the Fed's latest interest rate attitude will have a significant impact on asset markets.

Taper may be linked to employment data

According to a survey released on Friday, most of the 52 economists believe the Fed will announce a reduction in its bond-buying (taper) in November.

Specifically, 2/3 of economists surveyed expect the Fed to announce a scaling back of its bond-buying program at its November meeting, and more than half of them expect bond purchases to start shrinking in December. This is earlier than the July survey, when most people are expected to make a decision in December, and 4/5 want to scale back their bond purchases from 2022.

In addition, with regard to the pace of Taper, 33% of respondents expect Taper to last for 8 months, and nearly half of respondents expect Taper to last for 10 months or more.

Some analysts believe that the timing and pace of Fed Taper will be linked to US job growth in September and beyond.

The Fed said in December that it would not change its bond-buying program until "substantial further progress" was made on the 10 million jobs lost as a result of the epidemic.

At that time, the novel coronavirus vaccine had not yet been promoted on a large scale, and it was reasonable for the Fed to closely combine policy with unemployment levels for fear of falling back into recession, but now it makes policy makers rely on an employment recovery, which is intermittent due to a variety of factors.

As of August, the US economy had recovered less than half of the 10 million jobs lost, especially when non-farm data unexpectedly added only 235000 jobs in August.

Some Fed officials, including Fed Governor Waller, want to turn on Taper, as soon as possible. They believe that under the current circumstances, bond purchases will do little to help restore jobs, and that if long-term interest rates remain low, which in turn encourages Bubble of real estate or other assets, it will bring risks.

However, many Fed officials want to retain the option to reduce bond purchases as soon as possible at the November policy meeting if job growth rebounds in September and beyond and the risk of the epidemic recedes, but to delay Taper if the virus further hampers recovery.

We expect that [this time] FOCM will open the door to a possible Taper announcement in November, provided employment growth is strong in September. We believe that this obstacle is about 750000 (new jobs), which should be relatively easy to reach. " Jeffery analysts said.

"while we doubt whether the Federal Open Market Committee ((FOMC)) will develop a plan to scale back asset purchases, the new economic forecasts are likely to shed some light on its response mechanism, given rising cyclical inflationary pressures." Jonathan Petersen, a macro-market economist at Capital Investment, wrote in his latest research report.

Expectation of raising interest rate

Also noteworthy is the Fed's bitmap, the picture of Fed officials' expectations of US interest rates over the next few years. While the Fed plans to reduce bond purchases this year, its view of interest rates could provide new clues that could affect global markets, analysts said.

Friday's survey also showed that the Fed will keep interest rates near zero by 2022, then raise rates twice by the end of 2023, and there will be three more in 2024.

Our expectation is that they will raise interest rates three more times in 2024. These bitmaps reflect the fundamentals of FOMC participants, so there are actually some risks relative to market pricing, "said Megan Swieber (Meghan Swiber), US interest rate strategist at Bank of America.

A growing number of economists expect Powell to continue to lead the Fed to return to normal monetary policy, and Biden is expected to re-nominate Powell as Fed chairman for a four-year term when his current term expires in February next year.

Super political week

Politics will also be the focus of market attention this week. On Monday (September 20), Canada will hold the 44th Federal House of Representatives election ahead of schedule. Opinion polls show that the support rates of the ruling Liberal Party and the Conservative Party are close, and Prime Minister Justin Trudeau is still under pressure to win re-election.

There is another big event on Thursday that cannot be ignored-the German general election, which is one of the biggest focuses of the week, and the final candidate debate will be held on Thursday before the September 26 election.

At present, opinion polls show that the German Social Democratic Party has a lead of 4 percentage points. If the Social Democratic Party finally wins the general election with a lower percentage of votes, there is likely to be a multi-party coalition at the federal level. This means that the party may lack sufficient political space and strength to turn ambitious election promises into practical policies.

In Russia, Monday's vote count showed that the ruling party United Russia, which supports President Putin, will still have a majority in the new parliament.

In addition, the US Congress is still making no progress in dealing with the potential government shutdown and the debt ceiling crisis, the US market is shrouded in great uncertainty, and the "black swan" is about to emerge.

Us Treasury Secretary Yellen once again called on Congress to raise or suspend the debt ceiling. she recently wrote that if Congress does not quickly raise or suspend the federal government's debt ceiling, the federal government will default on its debt in October this year, which could lead to a widespread "economic disaster." She believes that in the event of a default, the United States will "become a permanently weak country" when it comes out of the crisis.

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