• Fed still ‘a ways away’ from considering lift off from current near-zero level
• Policy path outlined in Sept dot plot would be ‘consistent’ with Fed’s framework if current inflation and jobs forecast is met
• Repeat of 2021 inflation next year would not be a policy success
• Sees full return of pre-pandemic employment levels by end 2022, unemployment rate at 3.8% with participation rising

• Expect supply chain disruptions to extend through 2022
• We have quite a bit of inflation
• We’ve done a lot to move policy in a hawkish direction
• If we had to, we could end taper somewhat sooner than June
• If inflation is more persistent, we may have to take a little sooner action
• Bullard is a voter next year

• Prior 16.9

The Fed met this week and tapered as expected to the tune of $15 billion per month.The slight shift was that the Fed was going to be ‘flexible’ around the timing for the end of asset purchases. This was a nod to the rising inflation pressures seen around the world and the Fed assuring markets it would act if necessary to curb rising inflation. However, in the press conference, the Fed stressed that they would be ‘patient’ before hiking rates.

The key points

• The Fed gave a further nod to inflation concerns by 1) changing the statement to read that inflation was ‘expected’ to be transitory & 2) that Jerome Powell did not mention the word ‘transitory’ in the press conference.
• Jerome Powell dodged the question ‘is a 2022 hike appropriate as you would expect, however he did recognise that maximum employment could be reached by the middle of next year. So, that is possibly more hawkish.
• Jerome Powell does not think that the Fed is behind the curve, needs to see more progress on jobs. He considers jobs back to ‘pre-Delta’ path as ‘good progress’.
• The Fed took a step back from transitory in the statement as it means ‘different things to different people’. Now I think the meaning is fairly clear, so this can only really be about time frames. A 2 year blip may be considered transitory over a 25 year sample etc.
• The Fed wants the market to know that the Fed ‘have the tools’ to combat high inflation if it becomes permanent.

The takeaway

Similar to the RBA the Fed have been hawkish in deed, and dovish in action. They have been hawkish  by tapering flexibly and communicating that the Fed will communicate to markets if they have to alter the pace of tapering. However, with a dovish stance of ‘patience’ on hiking rates. It is arguable that the Fed has kept open the opportunity to hike rates in the middle of June 2022. However, like with the RBA, two important metrics going forward for the Fed are going to be inflation and employment. The Fed has stressed patience on both jobs and inflation for now. However, significant moves in either of these two metrics will result in the Fed thinking again. Be prepared.

The sharp move lower in bond yields post the FOMC as markets price out aggressive rate hikes means gold could find some decent upside, so worth looking out for.

• tolls are rising by 6% in 2022
• canal authorities are looking to take advantage of booming global freight movement, ship traffic across the globe is forecast to rise 7% in 2022
• dry bulk and liquefied petroleum gas carriers saw their rates up 5% in 2020
• LNG and cruise ships are exempt from the rise in 2022