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Macro Musings: It takes a lot to rattle the market

The financial markets shrugged off a string of ominous messages from the Fed, the White House and China. The prospect of a less accommodative monetary policy, a government shutdown, a debt-ceiling crisis and the default of a major real estate developer in China did not prevent stocks from moving higher this week. The Federal Reserve’s policy meeting took center stage during the week, providing a strong signal that the tapering process is poised to start, perhaps as early as November. It also pulled forward the expected start of rate hikes from 2023 into 2022. Chair Powell indicated that the next jobs report for September only had to be “reasonably good” for the Fed to go ahead with its plans. Since the September report comes on the heels of much weaker job gains in August than expected, it remains to be seen what constitutes a “reasonably good” increase in September. From our lens, the Fed’s projected rate lift-off is a bit too hasty in light of formidable headwinds that could restrain activity next year, as well as the uncertainty surrounding the economy’s main growth drivers. Indeed, we note that the October jobs report will be released just two days after the November 2-3 FOMC meeting, so the risk of a weak reading that would put the taper decision in a negative light can’t be ignored.

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