This is a special QuickHit Cage Match edition with returning guest Albert Marko, and joining us for the very first time Andreas Steno Larsen to talk about tapering. Will the Fed taper this year? If yes, when, how, and why? If no, why not? Also discussed are the housing market, China GDP, and corporate earnings.
Andreas is the chief global strategist at Nordea Bank, which is mostly a Nordic bank, but has a presence in large parts of Europe, but also in the US. He speaks on behalf of the bank on topics surrounding global markets and in particular bond markets.
Albert Marko is a consultant for financial firms and high net worth individuals trying to navigate Washington, DC and what the Fed and Congress are up to.
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Show Notes:
TN: What is your position? Why do you think it’s going to happen? When do you think it’s going to happen?
ASL: Well, I think tapering is right around the corner, and the basic reason is that I expect marked sequential improvements in the labor market in the US over the coming two or three quarters.
So my base case is a decision taken in September and then an implementation starting already in December this year. And I expect them to be done already during the first half of next year with the tapering process.
TN: When you say explosion the labor market, you mean more people coming into the market?
ASL: Yeah. And they come into the market and fill these job openings right now, we have a low labor market mobility due to a lot of temporary factors. And once they’re gone, then we should expect employment to be almost running at full speed before New Years.
AM: I would agree with him in the old days. But we are in a situation where these tapering assumptions are based on Fed rhetoric and the public comments that they’ve been making specifically addressing his unemployment boost or surge.
We still have COVID lockdown patchwork across the world happening at the moment.
China’s GDP looks like it’s not going to surpass two or 3% for the next 4-5 quarters. Where the United States going to get inventory for the holiday season and have this boost in employment surge that we usually get on holiday season.
TN: Let’s say it doesn’t happen in September. What is the Fed thinking through and what mechanisms do they have to use instead of a taper?
ASL: China is slowing massively. But I actually find it very interesting that the Federal Reserve is now even more behind the curve when it comes to its reaction function compared to earlier cycles.
China has another wave of restrictions that will lead to renewed supply chains disruptions across the globe. And again, we will have a wave of supply side inflation.
What they have in sort of the toolbox ahead of September is obviously that they could hint that the interest rate path further out could be hiked.