The minutes of the 16-17 March FOMC meeting, which will be announced tonight, are important in terms of the Fed’s approach to recent economic developments and movements in the bond curve. When interpreting the minutes, it should be taken into account that they do not set forth assumptions about the exact size and effects of Biden packets in terms of the time frame of the last FOMC meeting. Of course, in addition to the aforementioned parameter, namely the impact of aid and infrastructure packages, many economic indicators that have started to improve may cause the Fed to come to the stage of evaluating the tapering element, at least within the FOMC. In this respect, the next semester and summer meetings may also contain important explanations about the tapering of QE. It will be more important now for the Fed to say that this can happen, than to start tapering.
We have been focusing on the 2013 model Fed assumption made by the IMF for global capital movements for a while. A significant warming effect is seen in the US economy in terms of both the fight against the epidemic and the real economy developments. This appears to be in much higher momentum with the effect of a recovery from a bottom, but economic activity and many returning workers, supported by the opening of closed businesses, may continue this revival effect. Financial aid supporting factors for companies and individuals with financial packages of Biden; The business volume that will increase in the economy with the infrastructure package has also made the expectations optimistic. Since warming in inflation is also heavily associated with economic recovery, the Fed does not approach this as an acute problem and does not take any policy steps towards steepening the yield curve.
Inflation will be allowed to remain high for a while, and the increase is thought to be cyclical. However, as the part to be considered; the farthest part of the bond yield curve becomes steeper. In other words, interests and inflation are assumed to be higher in the long run. The Fed will not change its forward-looking guidance by looking at individual data, but if the economic development is sustained, it is likely that the center of gravity of its current policy plane will shift to the tightening side. For example, moving the QE tapering calendar a little earlier can be evaluated a little more in the later FOMCs. If the Fed decides to pull global liquidity to the US at an earlier stage and signals this, a conjuncture like the 2013 Bernanke turn may be entered.
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