Is There Deflationary Risk Ahead with Possible Fed Tapering?

TL;DR

Fed Chairman Jerome Powell's dovish tone at Jackson Hole and new data on the US economy have raised questions about the strength of the US economy and the possibility of tapering. Bitcoin remains stable below $50,000, while billionaire John Paulson criticizes cryptocurrencies and remains bullish on gold.

Transcript

foreign hello it's Monday August 30th 2021 Welcome to the Real Vision Daily Briefing I'm Maggie Lake and today I'm joined by Darius Dale a 42 macro who contrary to popular opinion was not in Maine this weekend we'll get more on that in just a minute first let's take a look at what we are tracking right now the S P 500 notched up another record high... Read More

Key Insights

• ✋ Fed Chairman Powell's dovish tone provides an air pocket for the market, likely pushing risk assets higher in the short term.
• 💇 The size of the budget resolution and potential haircut could impact the speed of tapering and market sentiment.
• ❓ Uncertainty around fiscal policy, including the debt ceiling and government shutdown, could increase volatility in the market.
• ✋ High inflation and the Delta variant continue to weigh on consumer sentiment and recovery in the service sector.
• ⌛ Labor market metrics indicate that substantial further progress has not been achieved, giving the Fed more time before starting the tapering process.
• 🏅 Bitcoin remains stable below $50,000, and billionaire John Paulson criticizes cryptocurrencies while remaining bullish on gold.

Questions & Answers

Q: How did Fed Chairman Jerome Powell's dovish tone impact the market?

Powell's dovish tone at Jackson Hole suggested that while tapering discussions should begin, there is no rush to start tapering, creating an air pocket for the market that is likely to push risk assets higher.

Q: Is tapering still an open question for the Fed?

Despite some dissenting voices within the Federal Reserve, Powell's recent statements indicate that tapering should be on the calendar, but there is no immediate need to start tapering as substantial progress has not been made on the labor market goals.

Q: How does the uncertainty around fiscal policy and the debt ceiling impact the market?

The uncertainty around fiscal policy, including the potential haircut in the budget resolution, could lead to more hawkish or dovish outcomes for the Fed's tapering timeline. The speed of the tapering will depend on the fiscal policy decisions and their impact on the economy.

Q: What factors are leading to the decline in consumer sentiment?

High inflation and the Delta variant's impact on the recovery of the service sector are major factors contributing to the decline in consumer sentiment. The inability to acquire big-ticket items due to high prices and limited service sector demand are leading to the decline.

Q: How is the labor market condition affecting the timing of the taper?

Three key labor market metrics that the Fed is focused on—employment to population ratio, labor force participation rate for prime working age adults, and the number of people out of work due to the pandemic—indicate that substantial further progress has not been made, suggesting the Fed does not need to hurry with tapering.

Summary & Key Takeaways

• The S&P 500 reached another record high, driven by technology shares, and the NASDAQ increased by 1%. Fed Chairman Powell's dovish tone has opened the door to this rise in equities.

• US pending home sales unexpectedly declined for a second month, signaling a cooling US economy due to high prices and tight inventories.

• Bitcoin is below $50,000 but holding steady, while John Paulson believes cryptocurrencies are a bubble and remains bullish on gold.