Rates Little Changed Despite Prospect of Fed Taper

FOMC keeps rates unchanged, contemplates taper as soon as November. The FOMC left rates unchanged as expected, but Fed Chair Jerome Powell hinted that the central bank could look to taper its asset purchases as soon as November-  adding that he views the preconditions for a taper as essentially met. In addition, the updated dot plot shows that nearly half of the FOMC expects to begin raising rates in 2022, though Chair Powell was quick to emphasize in his press conference that the conditions for a taper are not necessarily the same as those for a rate hike.

Swap rates and Treasury yields little changed despite prospect of Fed taper. Swap rates and Treasury yields reacted in muted fashion to the FOMC rate announcement and press conference, suggesting the Fed has done a good job of telegraphing its tapering of bond purchases to the market. Ultimately, swap rates and yields ended the day marginally lower across a flattening curve – the 10-year Treasury yield declining 2 bps to close at 1.30%. Risk assets took solace from the dovish tone of the committee- the S&P 500 gaining on the day after several days of declines.

Day ahead. A busy week for markets will continue in full steam as the Chicago Fed reports manufacturing activity, the Department of Labor reports its weekly jobless claims figure and Markit releases its latest service sector and manufacturing PMIs. Labor market data will be of particular importance as the Fed looks for strength in jobs figures as a condition of its taper later this year.