Source: Unigestion, Bloomberg as of 1 December 2021.
The market seems to be pretty confident where the Fed is headed with their monetary policy. However, it is helpful to put such a tightening cycle in the all-too-recent context of asset purchase tapering and rate hikes. As our chart shows, the Fed waited a year after ending quantitative easing (QE3) before its first rate hike at the December 2015 meeting. It then waited another year before the second hike. Of course, the macro picture in 2015-2016 was markedly different from today, in particular, inflation pressures were muted and the job market was quite robust. However, the takeaway from this historical context is that the Fed has largely shown cautiousness over the last few years, letting shifts in policy flow through and assessing the outcome before engaging further. Put another way, they tend to “tap the brakes” rather than slam their foot down.
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