Adding a little more from BlackRock on central banks, this time the Federal Reserve.
(BlackRock is the world’s largest asset manager)
- The Federal Reserve has made the start of asset purchase tapering conditional on having achieved “substantial further progress” on its inflation and employment goals. With Chair Jerome Powell acknowledging that this condition has been met for inflation, the last hurdle is employment.
- August payroll data released last Friday showed a 235K gain. Although far below expectations, seasonality could be at play and a revision upwards is possible. In any case, the increase is a step toward making up two-thirds of job losses outstanding in December 2020 – the level some FOMC participants have indicated could be sufficient to represent substantial further progress in employment. See the chart.
- Strong readings in September and October could put the Fed in a position to make an announcement on tapering in November – not impossible given the end of the unemployment benefits top-up next month, in our view. The Fed has emphasized that tapering is not a direct signal about a lift-off in policy rates, which we still don’t expect before 2023.