Key Takeaways: 

  • The Federal Reserve held steady its target for overnight rates to a range of 0 – 0.25%, as they have for about 20 months 
  • Policymakers are reducing the pace of monthly bond buys by $15 billion in November and another $15 billion in December
  • Changes to the statement included some greater qualitative worries about inflation, but no reference to “balanced risks”
  • A key aim of U.S. monetary policy appears to be the need for flexibility to tighten in the event inflation doesn’t recede by mid-2022

After thinking about thinking about it since April, and talking about talking about it since August, and talking about it since September, the Fed has finally done it. Taper Day has finally arrived. At their November policy meeting, the Federal Open Market Committee has elected to reduce the pace of monthly bond buying by $15 billion (2/3 of the cuts in Treasuries and 1/3 in MBS) while, for the moment, keeping their target for overnight interest rates at zero. At the current pace, QE will terminate in July 2022, opening up either the potential for a June or a September first rate hike. Whether that hike actually happens—and we are skeptical—depends on whether core inflation sustains at current slightly elevated levels or begins to fade in the new year.

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