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The Cambridge Weekly – 31st August 2021

Fed tapering: the ‘how’ matters more than ‘when’

Questions over when and how the US Federal Reserve (Fed) would begin tapering its monthly securities purchases has been much talked about over the last few months. But ahead of last Friday’s keynote speech at the Jackson Hole symposium, questions have been shifting increasingly towards ‘how’ the Fed tapers, instead of ‘when’. On Friday we got an answer, of sorts. Fed Chair Jerome Powell confirmed the Fed could begin reducing monthly bond purchases sometime this year, given the US economy has met the selfimposed test of “substantial further progress” towards its inflation objective, and after “clear progress from the US labour market. Powell also suggested the Fed would like to conclude its bond buying programme before raising interest rates, underlining the lack of a mechanical connection between tapering asset purchases and starting with rate hikes.

 

Markets can take a bit of tapering

After a tough 18 months, US Federal Reserve (Fed) members were probably looking forward to a scenic mountain retreat in Wyoming. Unfortunately for them, this year’s Jackson Hole symposium – the annual who’s who of monetary policy – was, once again, not actually in Jackson Hole. The weekend’s meeting, billed as the biggest event on the central banking calendar, was moved online at the last minute, as the Delta variant storms across the US.

 

China’s common prosperity challenge

China’s Communist Party has a knack for unsettling investors. In the past, this largely came from the state’s sometimes haphazard approach to market interventions – with sudden policy changes causing shocks. Officials have upped the tempo of these interventions in recent times, from technology crackdowns and sudden cancellations of stock market initial public offerings (IPOs) to sweeping changes in the private education sector. The speed and wide range of corporate crackdowns this year has added another layer to investors’ concerns: that they are part of a coordinated plan to roll-back 30 years of market reforms and return to a socialism with more, shall we say, traditional Chinese characteristics.

 

Read the full commentary here

 

 

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