Daily Commentary BY THE CURVE TEAM –

Daily Insights – Fed QE Taper Imminent

23rd of September, 2021

Fed QE Tapering

  • On QE tapering, Powell suggested it could begin as soon as next meeting and end by mid 2022. Bond yields ticked up as a result.
  • Updated forecasts from Fed members suggests the federal funds rate (FFR, equivalent of our cash rate) will rise either in 2022 or 2023. Prior to the overnight update, the forecasts had implied 2023 was more likely, whereas now it is an even split.
  • Similar to Australia, increases are expected to continue once they begin, with a FFR of 1.8% in 2024. We believe this overstates the ability of the Fed (and the RBA) to raise interest rates without impeding the economy.

China Evergrande

  • China injected $18.6 billion into the financial system as Evergrande default fears spread.
  • In the near term, this should avoid Evergrande defaulting.

RBA OMOs

  • Daily open market operations will now occur weekly on Wednesday’s. This aligns with the maturities for these repo’s, which the RBA has arranged to all be on Wednesday.
  • With enormous ES balances, that are expected to continue growing until the TFF matures, there is a much lower need for ADIs to meet daily liquidity needs via OMOs. Hence the shift to weekly.
  • The RBA still stand ready to conduct OMOs on other days if required.

Josh Stewart

Associate - Money Markets