Fed: Hawkish shift signals faster QE taper, pointing to further USD strength into year-end – MUFG
01.12.2021, 09:23

Fed: Hawkish shift signals faster QE taper, pointing to further USD strength into year-end – MUFG

The comments from Federal Reserve Chair Jerome Powell were much more hawkish than expected on Tuesday and have understandably fuelled a surge in US yields and more modest gains for the US dollar that could well have further to run, economists at MUFG Bank report.

Powell sticks to a pre-Omicron script

“Powell can of course pivot back more dovish if required if the news on Omicron points to an alarming hit to demand. The comment that the word ‘transitory’ should be retired suggests a clear shift in communication strategy going forward.”

“Of course there remains a risk that the details on the variant are very unfavorable for growth and the dent to the demand outlook allows the Fed to reign back on the plans to speed up tapering. But the balance of risks has certainly shifted to the Fed taking on a more hawkish stance. It seems the Omicron variant news would have to be bad for the Fed to pivot back to a more dovish stance.”

“Whatever the outcome of news on Omicron, this speech from Powell certainly reflects increased concerns over inflation risks going forward and points to a faster QE taper that points to further US dollar strength into year-end.”

 

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