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No sooner have the passions over the minutes of the US Open Market Committee meeting passed than its representatives make some very interesting new statements which shed light on further QE plans.
S&P500
St Louis Fed President James Bullard said that vaccination of 75% of the US population would be a signal that the COVID-19 crisis is coming to an end and it would be a prerequisite for the Central Bank to start considering a reduction in the bond-buying programme and therefore a gradual winding down of the quantitative stimulus programme.
In the USA around 36% of Americans have now received the first dose of vaccine and 22% have already been fully vaccinated. The US government is trying every way to speed up vaccination and with a little forecasting, the 75% level could be reached as soon as this summer, in 2-3 months.
So we can expect some first signals from the Fed to slow down the printing press as soon as this summer. Of course there is still plenty of time and many factors that could change this view, but at least we now know the point where we need to start watching the Fed and their statements.
Let’s now speculate how the Fed will put the brakes on the printing press. From past experience, they will most likely start reducing their purchases of Treasuries by $10 billion each month. Whether they will be able to shut down the printing presses completely is unclear, because the national debt is already over 100% of GDP. Debt service is getting more and more difficult and now the USA can get into a financial trap when it will be impossible to service the national debt without printing money.
The conclusion is that the Fed will stay the course until the end of summer. It is unlikely that there will be any strong bearish movements in the markets. The economy is pumped with money and the markets absorb it. Next, we need to look closely at what will happen with vaccinations and the number of people getting sick. After all, there are no concrete statistics yet on whether and how vaccinated people will get sick.
08.00 Harmonised consumer price index in Germany YTD
14.00 US retail sales for March
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