We find it comical that some pundits think that since a couple of Fed members have come out to say that the Fed is unlikely to cut back on their QE program any time soon, it means that we should totally ignore the other Fed members who have been talking about tapering back on QE if the vaccines help unlock the economy. THIS is how the Fed changes their stance!!! They get a few Fed members to talk about a change...while a few others say that nothing is going to change for the foreseeable future!
This is the lesson the learned in May of 2013 when the big “taper tantrum” took place. They quickly had to pull-back on their initial statements about “tapering”...and they spent the rest of that summer going back and fourth...with some members saying that they might taper...while others said it was unlikely that they’d taper. Most of them said it was “data dependent” and that if the data improved then they would indeed taper. Well, the data didn’t improve at all that summer...but they still tapered in the fall. Why? Because interest rates were WAY below what they should have been given the underlying economic data...and they realized that they needed to “normalize” rates back up to the level that was justified by the economic growth of the time. They were always going to taper. However, they felt that they had to do it in a way that would not create another tantrum...so they went back and fourth in their public comments until they did what they knew they were always going to do: taper. (That strategy worked out quite well. They were brilliantly about to adjust from the initial mistake they made in May of 2013.)
We believe that the are following the exact same ...
