While not sure why all Federal Reserve Chairs do not do this type of event … there are an even dozen Fed Banks scattered across the country for roots in various geographic areas, we are very happy our local favorite, Dallas’s own Federal Reserve Bank President, Robert Kaplan has started his own town hall event.
Think this is our third or fourth attendance, with the first as mentioned here, becoming an accidental question…
Incidentally at this event, the first three questions were from acquaintances… Great Minds I guess!
Another Robert Kaplan Town Hall Update New York Fed Williams Chimes in
The most important item mentioned in this town hall was that Kaplan supports a taper of the 120 billion monthly purchases of Mortgage and Treasury bonds as soon as October, with an announcement in two weeks at the September 22, 2021 Fed meeting.
Luckily with the delay of the weekend to produce this full post, New York Federal Reserve (debatably the most powerful bank) Chair John C. Williams in a speech via video conference to St. Lawrence University said the following:
“There has also been very good progress toward maximum employment, but I will want to see more improvement before I am ready to declare the test of substantial further progress being met. Assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year. I will be carefully assessing the incoming data on the labor market and what it means for the economic outlook, as well as assessing risks such as the effects of the Delta variant.”
Wall Street Journal’s Go To Reporter Pens Friday Article
Then the following story hit the Wall Street Journal Friday, September 10, 2021 by the Fed’s favorite go to reporter, NIck Timiraos..
NIck runs with a November 2021 Taper Transition and a 15 Billion per meeting drop off from the current 120 Billion monthly purchase…
What to Watch – Longer Term Interest Rates, Markets Themselves
If this is true, and the FOMC does begin taper, we will need to keep a sharp eye on interest rates, especially the longer end i.e. 10 year treasury.
Near then end of 2018, the FOMC began lowering asset purchases AND raising rates at the same time… Markets protested with a sharp 20% drop, causing Fed members to reverse course.
Kaplan and other officials are reiterating that just because the Taper may begin, interest rate increases are not on the horizon yet.
Recall in our very recent Kyle Bass review, where Fed officials are known to carefully watch the Capital Market reaction to their comments. If as true as Bass thinks, Fed officials will be watching close!
Other Kaplan Notes from the Town Hall:
- Delta hurting travel, and leisure, Dallas Fed US GDP estimate 6.5 down to 6 because of delta
- Slow workers with Jobs, Aug jobs number not surprised Sept slower than expected, JOLTS showing work avail, fear of delta keeping away,
- 3 mill folks left workforce since 2-20, 1.5 milion left for care of kids – matching problem work
- Supply demand on materials, PCE will be 4% PCE headline will be 2.6% 2022-
- Economy recovering slow Q3 but still growing, 3% inflation 2021
- Economic Fits and starts bc delta- vaccine, booster, masks help but
- High frequency mobility data not falling, folks adapting and managing through
- Business expect supply demand last longer than thought
- Worker demand higher pay, higher absence, reluctant to come back to labor force
- Mid to small business tougher time with employee—Larger Businesses more flexibility
- Broadly all businesses raising prices and they will stick
Apologies for the length of this post … this was a combination Reporter, notes and collection of various data points…
A smooth transition is very important, and long desired by many in the investment community, buckle up and let’s see how it goes!
Have a Great “Smooth Taper Transition” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents
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Federal Reserve Detailed Analysis from Last Weeks Announcement … A Very Stern Jerome Powell
As mentioned in our Preview Post last week, we have been watching the FOMC as their posture is due to change with regards to the stimulus put in motion early last year….
Jerome Powell Gets Tough
Recall as the economy was shut down last year the FOMC chaired by Jerome Powell and its members moved interest rates on the short end of the curve to zero and commenced a $120 billion per month purchase of treasuries and mortgage back securities. Both of these moves were to help stimulate the economy and to stabilize the capital markets.
Meeting their goal of stabilization and a much-improved economy the FOMC are ready to shift policies and unless any major economic or other disruption occurs Powell made it very clear that he expects policymakers to begin decreasing the $120 billion per month purchases, and if all goes well to have completely stopped monthly purchases by mid-2022.
As mentioned in some of our prior posts this message has been floated by multiple fed presidents and Capital Markets seem to be taking this news in stride, much to participants and reserve members’ pleasure.
Much of the mainstream media seemed to report that there was no major change in policy or tone to which we disagree. In listening to Powell especially in his interviews after the pre-plan reading of notes, he seemed much firmer and resolved to stop the monthly purchases and the tone in his voice in our minds, let us know if this would occur in the very near future.
As has been mentioned before many of our fellow professional investors have long desired this happened many months ago, but no matter, it appears that it is about to occur slowly and diligently, and capital markets are accepting.
On another totally different and non-market related and non-economic related topic several federal reserve members had transactions over the past year that were not optically good for the federal reserve. One of the members is our very own favorite Robert Kaplan who had multiple large transactions in securities that the federal reserve was involved.
While we will voice no opinion on this … Jerome Powell was very stern surprisingly, and in our mind so stern that it could be an occupational loss for some of these members. It will be interesting to see what comes out of this, but this is not the end of it and once again Powell was very angry and forceful on this point.
Bottom line we would expect a taper, slow lane of monthly purchases to commence shortly and will be watching interest rates which have already made some moves as well as capital market participation.
Have a Great “About to Taper” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents
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Posted in Economy, FOMC, Interest Rates, Investing/Financial Planning, Market Comments
Tagged Asset Purchase, FOMC, Interest Rates, Jerome Powell, Robert Kaplan, Taper