New Zealand's surprise decision last week to leave interest rates unchanged could herald the challenges facing the Fed on the issue of reducing its size.
One case of COVID-19 was enough for the Bank of New Zealand to decide not to raise interest rates, although Deputy Governor Christian Hawkesby called the decision because of policy communication challenges.
Federal Reserve Chairman Colin Powell faces a bigger hurdle as he weighs the severe epidemic against when to start scaling back bond purchases. The seven-day average of new COVID-19 cases in the United States reached 150000 this week, the highest level since January, and there are signs that the efficacy of the vaccine is weakening.
However, Powell still has time because market expectations for him to release a reduced code signal at Friday's Jackson Hole seminar have diminished. This gives him full freedom to adjust the way he communicates with the outside world about the future of the next policy decision.
If he is not satisfied, he can wait until November or even December, and Treasuries may wait for him patiently.
This article, extracted from the Markets Live review, only represents the author's personal views and does not constitute investment advice.