On Ending QE
I want to extend my note from last night. As I said, there is no reason to continue asset purchases at this point. Continued quantitative easing is at odds with the narrative around impending quantitative tightening. There is no reason from an economic or market functioning point of view to continue asset purchases. In my opinion, this has long been the case. That said, Fed speakers have given no ground on this topic. Speakers, including Federal Reserve Chair Jerome Powell, have consistently pointed to a March end date for QE. As I said last night, there is considerable logic to support that conclusion.
Importantly, the Fed still has time to change the narrative before the blackout period. Given that the Fed will be discussing QT, it would be reasonable that ending QE immediately would also be discussed at the January FOMC meeting. If there is a movement within the Fed to end asset purchases at the next meeting, the Fed would likely want to communicate that in advance; the window has narrowed on that but not closed. It would be a stronger signal if it came from the Board. Federal Reserve Governor Lael Brainard has an opportunity in today’s confirmation hearing. As far as other Board members are concerned, Governor Christopher Waller is scheduled to speak on Bloomberg Asia tonight at 18:00 EST. This occurs after the market closes in New York. That’s the appearance to watch ahead of the blackout period. Waller has been on the forefront of action and may want to endorse an immediate end to asset purchases. That would build momentum and push the option openly onto the table before blackout. If the Fed is moving towards a January end to QE, or even a more aggressive first rate hike, Waller might be the first signal from the Board.