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The record high set by the Dow Jones back at the beginning of August seems quite a long time ago, with August subsequently proving to be a difficult time for the stock market, but such has been the rapidity of the September rally that the Dow is now no more than 120 points from that all-time high.
The Dow gained 0.3% to 15, 543 by early afternoon in New York and the S&P 500 rose 0.4% to climb above 1700.
The Fed commenced discussions today for its latest decision on monetary policy, with an announcement due tomorrow evening. Some kind of taper is so widely expected that we can expect a small reduction in stimulus to already be priced into the market. FOMC voting member Esther George said on 6 September that she thinks a reduction from $85 billion per month to ‘something around $70 billion per month’ would be an appropriate step. Given that Ms George is the most hawkish member of the committee, based on her voting history at FOMC meetings where she alone has opposed the existing size of stimulus at every decision this year, I think it is reasonable to expect this to be the very largest reduction we might see, with something smaller far more likely in my opinion.
In fact, US inflation data today suggests the committee has enough latitude to defer tapering entirely. August CPI rose just 0.1%, compared to 0.2% seen in July and 0.5% in June. Inflation has been cool all year and remains tame. FOMC voting member James Bullard has expressed his concern that tapering while inflation remains below-target might undermine the Fed’s credibility and this latest result might therefore prove to have some bearing on the outcome tomorrow.