It will be a few more months before the Federal Reserve slows the pace of Treasury purchases.
Mortgage-backed securities are another ball of wax. However, insofar as Treasuries are concerned, tapering is not in the Fed’s immediate future. Why? Our rationale is that if Congress is wrestling over a $3.5 Trillion spending bill (healthcare, climate and education), it is only logical to expect the Federal Reserve to be the primary buyer of the forthcoming $3.5 Trillion in Treasury securities. Therefore, why would the Federal Reserve taper Treasury purchases at a time when it will be the primary buyer of $3.5 Trillion of new paper? Let’s not forget that while the Fed is theoretically “independent”, in practice it is an appendage of the U.S. Treasury.