Fed: Balance sheet normalization coming relatively soon - SocGen

Kit Juckes, Research Analyst at Societe Generale, points out that one key phrase in the FOMC Statement was that “The Committee expects to begin implementing its balance sheet normalization program relatively soon, provided the economy evolves broadly as expected’.

Key Quotes

“Fed-watchers (our own included) believe that ‘relatively soon’; means an announcement will come in September. Inflation, meanwhile, has decline and is running below 2%, whereas in June it had declined recently and was running somewhat below 2%. That’s a very subtle change but not one which will scare bond bulls. Market pricing of another 2017 rate hike has dipped below 40%. If the FOMC’s plan is to downplay talk of the future path of rates for now, so that the idea of an impending reduction in the balance sheet doesn’t scare investors and damage sentiment, it’s working out just fine.”