Week in Review: September 25, 2021

US equity markets ended the week higher, as concerns about Chinese property developer Evergrande subsided. The Evergrande outcome was far from certain on Monday when the S&P 500 fell by as much as 2.9% intraday, before ending down 1.7%, its worst decline since May. Market sentiment was aided by an infusion of $71B of liquidity into the markets over the course of the week by China’s central bank, helping assuage concerns about broader contagion.

As expected, the U.S. Federal Reserve maintained current monetary policy at its September meeting and did not make any official announcement about tapering. However, speaking afterwards, Federal Reserve Chair Jerome Powell signaled that the central bank is very close to beginning tapering, leaving little doubt that the Fed will formally announce its plans at its November meeting. Powell indicated that the inflation test to begin tapering has been met and that the employment test is close to satisfied. Powell noted that he personally believes the employment test has been “all but met” and that he would only need to see a “reasonably good” September employment report to be comfortable to start tapering. When the Fed embarks on tapering, Powell expects it to conclude by mid-2022. Addressing inflation, Powell said he expects it to remain elevated in the coming months before moderating, while acknowledging that current price pressures have been “larger than expected.” Powell’s more hawkish commentary helped drive the 10-Year Treasury yield to 1.45%, its highest level since early July.