Fed’s dissent and bond volatility are in Powell’s taper future

Bloomberg/Craig Torres and Liz McCormick

“Jerome Powell doesn’t want to talk about scaling back massive Federal Reserve asset purchases — at least not yet — but it’s only a question of time before the discussion resumes and that might not be a bad thing.”

USAGOLD note:  Have we forgotten that the last time the Fed attempted to taper that Wall Street threw a tantrum? Do we really believe that the Fed could step away from the massive position shown in the chart below without causing severe disruptions in both the bond and stock markets? Have we also forgotten the level of debt being assumed by the federal government and the lack of foreign buyers for the bonds issued? Those talking about the Fed being trapped, in our view, are significantly closer to the truth of the matter. The economists and policy-makers can talk all they want, when it gets down to action under these circumstances, we will become aware very quickly of the consequences.

bar chart showing Fed purchases of U.S. Treasuries and MBS combined 2008 to present

Sources:  St. Louis Federal Reserve [FRED], Board of Governors Federal Reserve System
Click to enlarge

Repost from 2-3-2021

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