We have very busy calendar for the week, with no less six central bank meetings in our universe. The central banks, which include the Fed and the BOE, will all attempt to slow down demand growth in an attempt to cool down the supply constrained economy. Other key events this week include Friday’s US labor market data and a full batch of ECB-speakers.
Wednesday’s FOMC meeting should be a straight-forward affair. The taper announcement has been well-telegraphed in advance. And with headline inflation readings soaring hot, a labor market that can’t keep up with labor demand, output having regained its pre-pandemic peak, extremely easy financials conditions and a pandemic that is receding further (at least in the US), the actual tapering of bond buying will probably start this month. Regarding the pace of taper, everybody has been doing the back-of-the-envelope calculations. Because that’s all there is to it. A USD20 billion a month would mean QE will end in March. That would be the hawkish outcome. USD15 billion a month and we’re looking at a May end, which we see as the middle-of-the road option. The Fed has guided for a mid-2022 end to QE. But that looks old hat these days.
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