The market and the Fed are in a tug-of-war.
Stocks and bonds are kicking and screaming about the possibility of tapering, even though it’s conditional on strong economic growth. For the past 5 years, every time the market pulled a hissy fit Bernanke & Co have fired up the printing press but is holding firm so far.
Later in the week, we hear from Dudley, Powell, Lockhart, Stein and Williams.
The early indication is that the Fed wants to placate markets by emphasizing that rates won’t rise even if tapering stops. At the moment the market has settled down but that could change at any moment and the market may want to send those speakers a message. The middle ground might be the Fed proposing not to hike rates until unemployment hits 6% rather than 6.5%. Ultimately, that would keep the US dollar on an upward trajectory.
In the meantime, global central banks are dealing with the fallout from Fed moves. The subsequent spike in yields is especially unwelcome in the UK, Europe and emerging markets. Officials there could respond by cutting rates.