On the November FOMC

Tapering will begin later this month, at a pace likely to wind it up by mid-year 2022. The statement made no change to the usual language making lift-off contingent on “maximum employment.” It doubled down on the belief that inflation is “transitory,” positing that the resolution of supply-chain disruptions will be both inflation-mitigating and growth-accelerating. We expect no meaningful consequences – if anything, a slight decline in yields and inflation expectations, a slight widening of credit spreads, and no particular effect on equities. When pressed to define the lift-off criterion of maximum employment, Powell was clear that it is more than just the unemployment rate – the inclusiveness of employment, and labor force participation are also factors. Powell said it is possible these criteria would be met by mid-year. All would have to be contextualized in a world in which Covid is no longer an economic factor – effectively introducing pandemic abatement as a new criterion.