Lately investors have been wondering about the effects of the US Federal Reserve’s “tapering”, a slowing of its $120 billion per month bond buying programme (Quantitative Easing). QE has added more than $4 trillion to the Fed’s balance sheet, which stands at $8.7 trillion. QE provided unprecedented support to financial markets but the Fed is now reducing its covid stimulus, making the fixed income market jittery. Ironically, tapering could actually be good news for the bond market.
What follows runs contrary to today’s “persistent inflation” narrative.