After all the months of prepping markets, “telegraphing” and promising almost unprecedented transparency on the subject, the taper announcement and structure has arrived. Interestingly, it was communicated by a release of Fed Minutes, not an official meeting date with a Powell appearance.
Summary of the Minutes and Commentary from Fed Officials: The “next meeting” (November 2-3) is an appropriate time to announce tapering. Bond purchases are now $120 billion per month ($80B treasuries, $40B mortgage backed securities). The purchases will be cut at a rate of $15 billion per month. This will result in an 8 month tapering period, completed by July 2022. It looks like the markets were ready, the 10 year actually dropped about 7 bps to 1.54%. Hopefully the market will be able to price future rate risk without a lot of volatility. What comes after tapering? The runway will be clear for a rate increase in 4Q 2022 (the futures market indicates this is likely). Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
