BMO: J. Hole Likely To Show Reluctance To Fed Pre-Committal

BMO note that "it's notable that expectations for Jackson Hole have shifted; at least on the margin. Less clarity on tapering is now anticipated, a shift in part credited to Powell's virtual versus physical attendance. The 'policy from home' decision unto itself isn't as relevant to expectations as the cause behind it - i.e. the delta variant and the health risks it carries. We're not entirely convinced the change will have any meaningful impact on Powell's prepared remarks, but then we didn't previously expect the Chair would offer tapering insight beyond what was contained in the July FOMC minutes."

• "One aspect of Jackson Hole that will be worth following is the degree to which Fed speakers emphasize the different thresholds for tapering versus a liftoff hike. It goes without saying that the bar for the former is lower than the latter; although the magnitude of the difference is the current unknown. By separating the two, the Fed has created an opportunity to reinforce the commitment to the new framework; after all, there is no set window between scaling down QE and normalizing rates - the only aspect of this known with any certainty is the sequencing. Needless to say, a Fed officially focused on liftoff being a separate decision (which it is), would lead to a dovish takeaway from Jackson Hole."
• "Monday's rally in equities without any accompanying risk-on sentiment in U.S. rates speaks to the transition back toward the 'bad news is good' dynamic. As the delta variant case count continues to rise, so does uncertainty regarding the Fed's willingness to taper sooner. Risk assets are responding to the perception there might be less urgency on the part of policymakers to reduce Tsy/MBS purchases than what was presented via the FOMC minutes. This isn't to suggest we're assuming the official announcement will be pushed into 2022; rather the case for a September decision has become less compelling. A reluctance to pre-commit to forward policy action while retaining as much flexibility as possible will most likely be the takeaway from late-August in the bison state."