Fed's Bowman: Very comfortable with starting to taper, preferably in Nov

Reuters reported that the Federal Reserve Governor Michelle Bowman on Wednesday said she would be "very comfortable" with beginning to withdraw some of the US central bank's crisis-era support for the economy as soon as next month, citing her worries about inflation and asset bubbles.

"I am mindful that the remaining benefits to the economy from our asset purchases are now likely outweighed by the potential costs," Bowman said in remarks prepared for delivery to South Dakota State University.

Key comments

Very comfortable with starting to taper bond buys this year, preferably in November.
Particularly concerned that asset purchases are pushing up valuations, or continued easy Fed policy poses risks to inflation expectations.
The benefits of Fed's asset purchases are now likely outweighed by costs.
If the expansion continues as expected, will support a pace of tapering that would end purchases by the middle of 2022.
Expects steady progress toward fed's inflation, employment goals in coming months.
Fed's tools not well suited to addressing labour supply issues.
She does not expect employment to fully return to pre-pandemic levels any time soon, for reasons unrelated to monetary policy.
Inflation readings will step down as supply bottlenecks are resolved.
Material risk that supply-related pricing pressures could last longer than expected.
Wage increases, other investments in employees potentially add to inflationary pressures.
Some bankers citing concerns about possible house price bubble, risks to financial stability.
If elevated inflation readings continue, may see an imprint on longer-run inflation expectations.
Anchoring inflation expectations are an important condition for meeting monetary policy goals.

Market implications

The greenback was recovering in the US sessions from the lows of the day on the release of the Fed minutes. Prior to those, the US dollar had eased back from a one-year high as longer-dated Treasury yields fell after US inflation data, despite it showing that prices rose solidly in September, advancing expectations for Federal Reserve tightening.

However, the US dollar has been ripe for correction considering how far it has come in just a couple of weeks, rising some 1.7% and running into a wall of resistance as per the Sep 2020 highs. The taper is already well priced in, so the greenback needs a fresh catalyst to keep the bullish trend alive.

US dollar monthly chart

Meanwhile, the Fed funds futures indicate > 95% chance for Dec 22, ~70% chance for a Nov 22 rate hike. That's a big increase vs. last week.