FOMC

Senate Banking Committee Chair Sherrod Brown said he expects Federal Reserve Vice Chair Randal Quarles’s oversight of the central bank’s financial supervision to end with the conclusion of his term in October.

As the White House weighs the potential renomination of Jerome Powell as chair of the Federal Reserve, officials are discussing the use of openings on the board to reshape the central bank.

More of the same from the FOMC did little to move UST or munis. ICI reported the 17th consecutive week of inflows at $1.98 billion. July is looking good for municipal issuers.

President Joe Biden would be well advised to offer Jerome Powell a second term as chair of the Federal Reserve to preserve policy stability as the U.S. economy recovers from the pandemic, said former Fed Vice Chair Alan Blinder.

The Federal Reserve’s tapering of its asset purchases, which he hopes will start “soon,” will run smoother this time around because investors already know that a move is being discussed, said Federal Reserve Bank of Dallas President Robert Kaplan.

Federal Reserve Gov. Christopher Waller said the better-than-expected performance of the U.S. economy warrants scaling back asset purchases sooner than expected and he favors starting with mortgage-backed securities.

The Federal Reserve might consider an interest-rate hike from near zero as soon as late 2022 as the labor market reaches full employment and inflation is at the central bank’s goal, Federal Reserve Bank of Boston President Eric Rosengren said.

The U.S. economy will likely meet the Federal Reserve’s threshold for tapering its asset purchases sooner than people think, said Dallas Fed President Robert Kaplan, who has penciled in an interest-rate increase next year.

Federal Reserve Bank of Atlanta President Raphael Bostic said the central bank could decide to slow its asset purchases in the next few months and he favored lifting interest rates in 2022 in response to a faster-than expected recovery from COVID-19 pandemic.

Federal Reserve Chair Jerome Powell said the price increases seen in the economy recently are bigger than expected but reiterated that they will likely wane.

A discussion about raising interest rates is still quite a ways off as the Federal Reserve begins debating tapering its bond-buying program, New York Fed President John Williams said.

John Hallacy, founder of John Hallacy Consulting LLC, talks with Chip Barnett about the pandemic’s lingering credit impacts on state finances in a wide-ranging discussion of the many issues affecting the municipal market today. (17 minutes)

Federal Reserve Chair Jerome Powell said inflation had picked up but should move back toward the U.S. central bank’s 2% target once supply imbalances resolve.

The short end of the yield curve faced pressure from a cheaper UST five-year. As the flattening trend in UST takes hold, demand for duration will also spill over into the tax-exempt space, with long-dated munis continuing to outperform, analysts say.

The Investment Company Institute on Wednesday reported $2.533 billion of inflows into municipal bond mutual funds, the highest since February.

Most analysts expect the Federal Open Market Committee will alter its Summary of Economic Projections and perhaps begin to talk about tapering, without offering clues when they'll begin cutting back on asset purchases.

Yields on top-quality munis were flat on the AAA scales Friday; yields were seven to nine basis points lower on the week.

“We have to be careful in removing accommodation so that we don’t create any kind of ‘taper tantrum,’ ” Philadelphia Fed President Patrick Harker said.

Randal Quarles left open the possibility that he might remain in his role as a Federal Reserve governor after his tenure as vice chair for supervision expires on Oct. 13 — a move that would reduce the openings for the Biden administration to fill.

Municipal yields will likely stay in a narrow range with trading activity subdued unless larger interest rate volatility unexpectedly sets in, analysts say.