Wall Street braces for Fed taper tap, despite ‘unusual situation’ in US economy

The US labor market recovery may slow, but Wall Street still believes it is time for the Federal Reserve to step back from its long-term monetary support during the pandemic.

The Fed will likely — and should — cut back on “excessive liquidity adjustment in the very near future,” Rick Rieder, CIO of global fixed income at investment giant BlackRock, wrote in a note Friday, after a report Disappointing salaries for the month of September.

September non-farm payrolls data showed on Friday that the US economy had Smallest job gain of the year, adding 194 thousand fewer jobs than expected, while the unemployment rate fell to 4.8% from 5.1%.

Reeder pointed to the “unusual situation” in the United States, that is, job gains have slipped from previous monthly highs, but pandemic shortages, including for workers, have pushed up prices for everything from household goods to cars, “and thus led weakening the growth of the economy.”

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BlackRock has, for some time, been arguing that the Fed’s “emergency” monetary policies are no longer necessary, given what “impressive” the economic recovery has been.

Here’s a Barclays chart showing why economists believe monthly salary gains since August 2020 have been enough to pull back.

pandemic salaries

Barclays

“In our view, the FOMC will consider cumulative progress through September to be sufficient to justify a decreasing announcement in November,” Barclays Economic Research Team led by Jonathan Millar wrote Friday, speaking of the central bank’s policy and rate setting committee.

Federal Reserve Chairman Jerome Powell “didn’t need to see a ‘very strong’ report for the Fed to move forward with a ‘reasonably good’ employment report,” Eric Winograd, chief economist at Alliance Bernstein Fixed Income, wrote in a note. .

While the slower pace of job growth may “give the Fed some pause”, Winograd believes there is a 70% chance the central bank will go ahead with its plans to lower the monthly pace of $120 billion in Treasury and mortgage-backed securities purchases, with the prospects of waiting. For another month at 30%.

Federal Reserve now Holds $5.4 trillion of Treasury debt, but also About 2.5 trillion dollars of mortgage-backed securities backed by the government.

The double whammy of the Fed’s low interest rate policy and excessive liquidity has seeped into the markets in unprecedented ways, including the shutdown of cash-filled Wall Street firms. From $1 trillion to $1.6 trillion Overnight Since mid-August At the famous repo facility set up at the Federal Reserve Bank of New York.

While many American families have found Better financial basis During the pandemic, deflation has also exacerbated inequality in America, especially for families without homes or stocks as prices have jumped to all-time highs.

US stocks closed lower Friday to cap a volatile week for stocks, but with the Dow Jones Industrial Average
DJIA,
-0.03%

Still booking 1.2% weekly gain, S&P 500
SPX,
-0.19%

Adding 0.8% since Monday and the Nasdaq Composite
COMP,
-0.51%

It ended the week 0.1% higher.

US credit spreads, or compensation paid to investors on bonds at a risk-free reference rate such as Treasurys
TMUBMUSD10Y,
1.612%
And
It has also been squeezed to near historic lows as the Federal Reserve’s bond-buying program enters its 19th month.

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