This quote on Bloomberg today caught my eye. It may be a crucial explanation for why the market is so unfazed by the possibility that the Federal Reserve might announce a schedule for paring back its $120 billion in bond purchases either at next week’s central bankers speech fest or at the Fed’s own mid-September meeting.
“While investors have understandably been worrying about the Federal Reserve’s potential tapering plans, against the backdrop of persistent Covid-19 cases, we believe the Fed is unlikely to announce tapering plans until case counts fall back to early-summer levels,” Rod von Lipsey, managing director at UBS Private Wealth Management, told Bloomberg.
From this vantage point, the Federal Reserve won’t move away from its current extraordinarily accommodative monetary policy as long as the current surge in virus cases makes predicting the course of the U.S. economy so difficult and hence increases the chance that any Fed move would be a mistake at this time.
There is a certain logic to this point of view. The Fed would very much like to avoid any policy move that turns out to be a mistake and that would have to be reversed after the real world picture gets clearer.
On the other hand, this logic is yet another example, in my opinion, of the market’s ability to generate narrative after narrative explaining why the loose money stock market bull has longer to run.