Any Fed Tapering on the horizon?
Let’s look at the facts:
- Since COVID hit, the US economy destroyed over 8 million jobs. The US December Non-Farm payroll number was both negative and below market expectations. The short-lived improvement we saw previous months seems at risk.
- A change in the US health policy and the second wave of Covid-19 could result in higher mobility restrictions. A slowly recovering US labor will take more time to fill the output gap.
- On the short term, inflation is pushed back downwards. Its correlation with job creations suggests that it shouldn’t reach pre-crisis levels before December 2021 or even later.
What do we think?
- We doubt the Fed will change its monetary policy until deflationary risks subside. No immediate risk for tapering, which is a good news for equities.
Source: Bloomberg, Seeyond. Januaray 2000 – December 2020.
Documents written on January, 26th 2021 by Stéphanie Bigou, Global Macro Portfolio Manager at Seeyond
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