However, there was more of a cautionary tone to comments from other Fed officials. Federal Reserve Chairman Jerome Powell played down the prospect of an imminent turn to raising interest rates when he said the Fed can be patient on hiking rates and now is not the time for the Fed to raise rates. The fed funds target range currently stands at zero to 25 basis points.


Cleveland Federal Reserve Bank President Loretta Mester said both supply-side and demand-side factors are contributing to U.S. inflation right now, but most of the current price changes may be driven by pandemic-related shifts that could subside over time. In addition, San Francisco Federal Reserve Bank leader Mary Daly stressed that moves to tamp down on price pressures prematurely could result in unneeded pain later if those pressures lessen. Federal Reserve Bank of Richmond President Thomas Barkin said the U.S. central bank needs more data before it can make the call on when it is time to raise its short-term interest rate target.


Most analysts expect a first fed funds rate hike in July 2022. My view remains that tapering represents only a limited withdrawal of accommodation.


Chart 2: U.S. Federal Funds Rate


FRANCISCO FEDERAL RESERVE BANK LEADER MARY DALY STRESSED THAT MOVES TO TAMP DOWN ON PRICE PRESSURES PREMATURELY COULD RESULT IN UNNEEDED PAIN LATER IF THOSE PRESSURES LESSEN.


TOO MUCH FOCUS ON TAPERING? In my opinion there is currently too much attention given to the Federal Reserve tapering its asset- purchase program. The fact remains that the fed funds rate is likely to remain at the historical low rate of zero to 25 basis points for quite a while.


PLENTY OF PUNCH STILL LEFT IN THE


PUNCH BOWL There is still plenty of accommodation in the international banking system, as well, despite some major central banks withdrawing a variety of forms of accommodation.


And now some central banks are backpedaling their hawkish rhetoric. For example, the European Central Bank appears to be taking a softer tack on withdrawing accommodation when European Central Bank President Christine Lagarde said tightening monetary policy to curb inflation could choke off the euro zone’s economic recovery.


Source: Tradingeconomics.com, Federal Reserve


Money tends to flow to where it is treated the best, and currently that asset-class is equities. A Federal Reserve tapering will not derail the bull market in stock index futures. The global reflation scenario seems still largely on track and may remain a major tailwind and ongoing dominant fundamental that supports futures in the longer-term. Higher prices may be likely for U.S. stock index futures.


Alan Bush


E: alan.bush@admis.com T: 001 312 242 7911


13 | ADMISI - The Ghost In The Machine | Q4 Edition 2021


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