The Fed's expansionary monetary policy is coming to an end and the time for tapering (i.e. reducing asset purchases) is approaching. This was clearly understood by the President of the Federal Reserve, the American central bank, Jerome Powell in yesterday's eagerly awaited conference which, however, put its hands on the unknowns that both the slowdown in China and above all the Delta variant are projecting onto the economy and financial markets. “We are putting away – said Powell – the emergency tools activated to counter the impact of the pandemic. But the Delta variant, with economic effects the extent of which is still difficult to assess, will require careful observation of economic developments".
The partial slowdown in American consumer spending and retail sales but above all the slowdown in the Chinese economy, on which the Delta variant seems to weigh much more than in the States, lead the Fed to the utmost prudence. But this does not mean that Powell will remain immobile and in fact, albeit gradually, he is getting the markets used to but also the public opinion to think that monetary policy will become less sweet and that the current $80 billion a month purchases of Treasuries and $40 billion of mortgage-related securities will gradually taper off to zero. But when will the tapering start? It is the timing that interests the markets which have proved to be particularly nervous in recent days. Among analysts, the conviction prevails that the reduction in Fed purchases could begin in three months, i.e. towards the end of the year, while the increase in interest rates, which should take place in 2023, seems more distant.
However, it is clear that for monetary policy, for now only the Fed but in the future also for the ECB, the music is changing and that a period of uncertainty is opening up even if public investments and confidence are giving breath to economic growth, the Delta variant permitting.
