Fed - where and when is the exit?
Lombard writes they expect the taper announcement in June, and assuming everything moves "smoothly" we should expect the tapering to start in Dec.
They mention three main points when it comes to Fed's exit game;
1, the rapid reopening basically shortens the timeline for the tapering
2, distortions will make 2022 a difficulty year for policy (note not inflation)
3, Biden's infrastructure plan could deliver what Lombard calls "a graceful exit".
The inv bank writes;
"while all the talk is about the Fed financing the deficit (admittedly fantasy, not reality), the Biden infrastructure plan, if passed and if it does boost real growth as intended, could deliver the Fed the growth backdrop that allows for a graceful exit from its distortionary policy position. That is a 2023 story."
Smooth exit is what most want, but the question is how will vols react to it?
We have seen a huge equity vol reset over past weeks, but VIX does not like when the rate of change of Fed's BS falls...
They mention three main points when it comes to Fed's exit game;
1, the rapid reopening basically shortens the timeline for the tapering
2, distortions will make 2022 a difficulty year for policy (note not inflation)
3, Biden's infrastructure plan could deliver what Lombard calls "a graceful exit".
The inv bank writes;
"while all the talk is about the Fed financing the deficit (admittedly fantasy, not reality), the Biden infrastructure plan, if passed and if it does boost real growth as intended, could deliver the Fed the growth backdrop that allows for a graceful exit from its distortionary policy position. That is a 2023 story."
Smooth exit is what most want, but the question is how will vols react to it?
We have seen a huge equity vol reset over past weeks, but VIX does not like when the rate of change of Fed's BS falls...