The Fed’s True Love: He Tapers Me, He Tapers Me Not

To that end, the term “maximum employment” was struck entirely from the Federal Reserve’s most sacred document.

See for yourself:

Having quasi-committed just last year to not falling into the same honey trap of falling in love with the unemployment rate, Chairman Jay Powell today at Jackson Hole indicated that, yes, the FOMC has once more fallen in love with the unemployment rate (in the manner Fed Governor Waller had laid out mere weeks ago). What Powell said today in Wyoming was:

My view is that the “substantial further progress” test has been met for inflation. There has also been clear progress toward maximum employment.

When former Chairman Ben Bernanke said near exactly the same thing, referring to progress in all the same factors, the “taper tantrum” which followed sharply contrasts to the reaction in significant markets (meaning: not stocks) after Powell’s remarks earlier this morning. Yields are down.

Why so different this time?

Perhaps the very amorous hearts of “monetary” officials have been so captured by that object of their affection, the unemployment rate, they simply don’t realize how after breaking up with it last summer they still hold dear all their same feelings anyway.

The bond market, however, isn’t under the same spell or subject to the same illusion. As I wrote almost two weeks ago, there was every reason to expect taper without tantrum in 2021:

The key part behind both the Fed’s [2013] tapering as well as bond yields surging upward was actually the same thing, another thing, rather than the former driving the latter. In other words, “…confidence that that is going to be sustained.” The second “that” being economic progress – legit economic progress.

Whereas the bond market in 2013 was becoming somewhat more confident (not for long) in the idea of legit economic progress behind Bernanke’s taper, the bond market in 2021 is, forgive the expression, crapping all over Powell’s.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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