Fed: A symbolic step on the road back to “normal” - SocGen

Janet Yellen has initiated the final stage of dismantling the post-GFC monetary policy framework before she (perhaps) departs from her role, according to analysts at Societe Generale.

Key Quotes

“The symbolism may be more important than the details. The much-anticipated announcement of the start of balance sheet ‘normalisation’ is a statement that the US economy is back to ‘normal-ish’. Through the myopic eyes of the foreign exchange market, this Fed move may: 1) persuade markets that a December rate hike is a ‘done deal’ if asset markets react positively, while 2) reinforcing the view that ultimately, peak Fed Funds will come in at 2- 2.5%, rather than the near-3% peak the Fed ‘dot-plot’ implies, and 3) give the dollar some support for now, without really changing the fact that a low peak in rates and a relatively calm global economic outlook support emerging market and higher yielding currencies.”