Federal Reserve officials are walking “a bit of a tightrope” at this week’s meeting as they weigh the risks that the coronavirus’s delta variant induces an economic slowdown against the chances of hotter-than-expected inflation in coming months, according to RBC Wealth Management’s Tom Garretson.
Investors are largely focused on the details of the Fed’s thinking on reducing its $120 billion in monthly bond purchases, though they aren’t likely to get much until the minutes of the July 27-28 meeting come out in three weeks. That leaves Powell’s views on inflation as the biggest risk to markets, following the Fed’s surprisingly hawkish pivot last month, Garretson said.
“Yields overshot their fundamentals in March, by rising to as high as 1.75%, and now they’ve moved too far to the downside,” he says.
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