By Tiffany WILDING, North America chief-economist 

• «  It is widely expected that the Fed will announce the first reduction in their monthly pace of bond purchases at the upcoming November 2-3rd FOMC meeting.  We agree, and expect the Fed will step down the pace by $15bn/month, which would end the program by the mid-June 2022 FOMC meeting.  While the Fed has successfully signaled this tapering announcement without much market volatility, they now face the challenge of managing rate expectations in the face of elevated inflation risks.

• Our baseline still sees inflation back at target at the end of 2022, and the first Fed rate hike in 2023. However, we’ve further raised our inflation forecasts as a result of a hurricane and additional supply chain disruptions in China, and now expect inflation to remain elevated into 3Q of next year. This longer period of elevated inflation increases the risks that longer-term inflation expectations also adjust higher – something the Fed will want to avoid. Indeed, the next few months are likely to test their patience and we see meaningful risk of rate hikes being pulled further forward when the December Summary of Economic Projections is released. »