Anticipated commencement of reduction prior to Christmas.

The US Federal Reserve's September meeting is shrouded in anticipation, as it may provide further clues regarding the monetary policy. This meeting could potentially reveal a tapering plan, offering insights into the future of bond purchases.

In his speech at the annual symposium in Jackson Hole, US Federal Reserve Chair Jerome Powell provided few new details, leaving many questions unanswered. However, his comments seemed to satisfy the markets, as indicated by market reactions.

One of the key points of interest is the pace at which the Fed will reduce bond purchases. Oliver Blackbourn estimated that the US Federal Reserve would reduce bond purchases by about $15 billion per month in 2021. Yet, the question left unanswered was how quickly the Fed will implement this reduction.

Powell's speech was a mix of old and new ideas, including transient inflation, unemployment still far from pre-pandemic levels, and tapering by Christmas. He also confirmed that the "substantial further progress" on inflation has been achieved, but did not declare any substantial progress towards maximum employment.

The end of quantitative easing could be linked to when interest rates can rise. Powell stated that there is still work to be done on unemployment. However, his comments left room for a more hawkish surprise on September 22.

The connection between tapering and potential earlier rate hikes is likely to linger in the market psyche. For now, markets appear to be content with a "dovish taper," as they anticipate a bond purchase reduction by the end of this year. Powell seems pleased to start tapering later this year.

The Fed's September meeting will undoubtedly provide valuable insights into the future of the US economy. The question remains whether the Fed will provide a clear tapering plan, and if so, at what pace. This information will undoubtedly shape market reactions in the coming weeks.