The Fed Is about to Reduce Bond, and Inflation Is Estimated to Reach 5% Next Year Again -Part 2

At the end of September, global monetary policymakers such as the Chairman of the Federal Reserve and the President of the European Central Bank expressed that the “transitory” high inflation is now likely to last longer. In a speech at an online event in mid-October, the chairman of the Federal Reserve Bank of Atlanta said that the Fed has set up a “swear jar”, and anyone has to put a dollar in every time he uses the dreaded word “transitory”. Then he said seriously that h the Atlanta Fed and himself believe that it is better to use the term “episodic” to describe today’s inflation rather than “transitory”.

US non-agricultural employment unexpectedly weakened in September, with an addition of only 194,000 people, which was significantly lower than the 500,000 people expected by the market. After the data was released, the market was betting on the weakening of the US economy and loose monetary policy in the short term, but this sentiment quickly dissipated within one hour. The 10-year US Treasury yield fell to around 1.56% in the short-term, then rebounded strongly and broke 1.6%, and closed at 1.618% on the day. The US dollar index plunged below 94 in the short term, then rose to above 94, and closed at 94.1 on the day. U.S. stocks that opened after trading experienced volatility and closed down slightly.

Many Fed officials believe that despite the weak employment data in September and only 194,000 new jobs in the United States, the labor market is expected to continue to recover with the epidemic recently mitigated and maintaining strong demand. Therefore, the sooner the Fed scales back its debt purchases, the situation would be better.

On October 13, local time, the Fed published the minutes of the September Federal Open Market Committee (FOMC) meeting, further stabilizing the Fed’s expectation that it will reveal a “gradual cut in bond-buying” in three weeks. The minutes indicate that the Fed may begin to reduce monthly asset purchases as early as mid-November. Some participants also raised the possibility of increasing the target range of interest rates before the end of next year.