To Taper or Not to Taper that is the Question…

Jackson Hole Preview:

• The Fed took another step in its path towards tapering at its July meeting, with the Committee acknowledging progress towards its goals in its statement for the first time.
• Chair Powell was careful to note that this progress is not yet substantial enough to warrant a policy change, and the Committee will continue to assess the situation, with action still dependent especially on labor market progress.
• Overall, the meeting was consistent with our view for that the next FOMC meeting in September will feature a formal announcement of the contours of tapering mechanics, although strong hints may emerge at the August Jackson Hole symposium.  For implementation in the first quarter of 2021.
• Since the FOMC minutes, the path of the delta variant which could peak in the coming weeks and employment growth will be key to any communication on the timing of tapering and our base case.
• We expect a cautious slow tapering in 2022 in order not to impact the economic  recovery.