Issue 43 – Record-Setting Run for Wall Street Confounding Calls for an Imminent Pullback
A Snapshot of the Market for the Week Ended November 5, 2021:
Last Wednesday, the Federal Reserve announced that its monetary stance had officially changed direction. The Fed will start reducing its bond-purchasing program by $15 billion a month, with a plan to end all asset purchases by June of 2022. Presently, the annual QE equates to about 7.0% of the money supply. I would consider this move by the Fed as serious tightening because it is a relatively quick wind down. Bernanke, former Chairman of the Fed, said that $600 billion of QE was equivalent to a 75 bps rate cut. Thus, removing $1.4 trillion of asset purchases, which the Fed is planning to do over the next 8 months, is like adding at least that amount of tightening. Yet, it came with no surprise and no tantrums, even though the message was institutionally biased to appease inflationary expectations. Powell has said on several occasions that he has no intention to preside over a rerun of the 1970s inflationary experience.
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