How much the Fed will reveal about its future intentions and what it says about its view of the economy will be key for markets.
No taper tantrum
Evercore's Fed watchers said they see the Fed "staying dovish to prevent a taper tantrum," as it did when it pulled away from quantitative easing in 2013. They said that without a clear commitment to maintain a high level of purchases, the market is interpreting the Fed as "happy" with the size and speed of the movement in Treasury yields.
"We think they've still got another $3 trillion or so that the balance sheet would go up," said Rick Rieder, head of global fixed income chief investment officer at BlackRock. "One of the things that's going to be really important for interest rates is as the Fed reduces the amount they are buying the Treasury keeps issuing."
"I think we're going to hear generalities of where they're going, and they think they'll be at this low rate for an extended period of time," said Rieder. "I don't think we're going to get a specific yield curve control. I don't think they want to go down that path unless things get significantly worse."
Briggs said, in what he calls Covid QE, that the Fed has only made 13% of its purchases in 20- to 30-year Treasury securities. "If they bring it up to 20%, then clearly the Fed doesn't want the long end to rise. If they do this, I think the correction off of higher yields could continue," said Briggs. In the Fed's QE3 program, 27% of its purchases were at the long end, he said.
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