On the face of it, it's bizarre that the FOMC is continuing to add to its portfolio of bonds right now. The world is panicked about inflation and the Fed is reeling from incorrect 'transitory' forecasts.
There's a strong argument for ending QE at the January 26 meeting. That will set the stage for a March hike that's already priced in at 90%.
At the same time, you can see the argument for waiting. The Fed is running low on credibility and one more month of bond buying isn't going to make a difference. Why risk rattling markets for something that's not really going to make a difference.
Fixed income strategists at BMO weighed in today with some good points:
Bringing forward the final bond purchase from mid-March to mid-February is on the table, but we’re skeptical the FOMC is willing to risk the relatively orderly nature of the repricing thus far. After all, while equities are down year-to-date, the tone isn’t one of panic or forced selling – rather recalibrating to the Fed’s well-telegraphed intentions of beginning a gradual hiking cycle. In the event the Fed ends QE a month earlier than already assumed, we’d anticipate greater angst in risk assets. Moreover, the mid-March versus mid-February end date isn’t a binding constraint for a March hike in terms of sequencing - so why risk further rattling investor sentiment?
I would also that right before the FOMC blackout, NY Fed President John Williams indicated that that a premature ending of QE wasn't on the table when he said "It's pretty clear asset purchases are coming to an end in March".
