The Fed this week was once again forced into a balancing act—trying to juggle a number of balls in the air while delicately walking a tightrope. As it walks the high wire it is no doubt also becoming increasingly wary about the strength of its safety net below, which is starting to look a little more frayed following years of overuse. Nevertheless, the upshot of this week’s FOMC meeting seems to have been a slightly more hawkish lean, which included an almost definite commitment toward tapering next month, along with significant increases in expected future rates via the dot plot.
In this Economics Weekly, we discuss the market’s reaction to the Fed’s announcements this week, with the view that the market would be correct to focus more on the tapering announcement and pay less attention to the increasingly irrelevant dot plot.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.