JPMorgan Chase & CoStrategists believe the Fed will still inject about $1 trillion in liquidity into the market during the period when it begins to scale back until the end of its $120 billion-a-month bond-buying program.
JPMorgan Chase & Co strategists Teresa Ho and Alex Roever wrote in a report released on Sunday that this is a conclusion based on the assumption that the Fed announced in December that it would begin to scale back and end its bond purchases by August next year, reiterating a similar view they made on Aug. 6.
As the Kansas City Fed opens its annual global central bank meeting in Jackson Hole this week, investors will be watching closely when and how the Fed will scale back its bond purchases.
But JPMorgan Chase & Co's report points out that the Fed will still provide stimulus money-albeit at a slower pace-and that the ample cash already in the system will continue to grow.
"We still believe that the Fed will announce a reduction in bond purchases in December, although the risk of announcing a reduction in November has increased," JPMorgan Chase & Co strategists wrote. " "assuming that the Fed ends tapering its bond purchases in August, that still means we could see 850 billion-$1,000bn of additional liquidity injected into the financial system."
The strategists also commented on the future of Federal Reserve Chairman Colin Powell, reiterating the previous view that it is "highly likely" that Powell will not be re-nominated after his term ends in February 2022.