Whilst markets do not expect the Federal Reserve to race towards tapering asset purchases – the soft jobs report did for that – there is a broad consensus in the market that it will begin dialling back the pace of its QE programme from November. That means this week’s meeting may be an appropriate moment for the Fed to give the market fair warning. Or not. In a sense it doesn’t matter much what they say or don’t say on tapering – the risk lies in what the Fed does or doesn’t say about rate hikes. And though Monday’s market sell off may have caught the Fed off guard, with stocks just 4% off record highs and credit markets accommodative, there is not any reason for panic. Stocks have been rolling over since the weak jobs report, and Fed officials should be prepared to look through some softer data and mild pullbacks in equity markets.

Last week’s CPI inflation clouded the outlook a touch – it was a little softer than expected, giving the Fed some more breathing space. More importantly, the very weak August jobs report suggests the Fed might not want to nail its colours to a November taper launch just yet. It could signal it still believes that tapering is appropriate this year without giving a fixed schedule. But we’re talking on the margins here – expectations still squarely on the Fed to taper this year, November seems likeliest. And the bounce back in retail sales in August should give policymakers some confidence that the worst of the Delta effect – a notable chilling of confidence and spending (and hiring) – is over. So too the fact jobs openings are very high and business confidence is improving again.

Investors will be most interested in how policymakers assess the pace of the labour market recovery, and whether they believe inflationary pressures are becoming less transitory than they thought. Close attention will be paid the latest round of economic projections for a guide on whether the Fed is changing its mind on the pace of inflation and growth. My own view is that we get a Fed that is more ready to accept – at least in the projections and dots, if not Powell’s words – that inflation is stickier than they thought it would be.

And the dot plot will be scrutinised of course. The last round brought the first rate hike into 2023, but there could be an even more hawkish shift calling for lift-off sometime next year once the tapering is complete. We’ve been hearing a fair bit from some of the more hawkish members of the FOMC lately about getting on with it, but the central view of the Powell/Clarida/Williams ruling triumvirate is more dovish – so dots could offer a more hawkish outlook than is the case.

In March, 4 Fed officials expect hikes in 2022 and seven Fed officials in 2023. In June, 7 Fed officials see hikes in 2022, while 13 fed official see hikes in 2023.

On inflation – we surely have to see some uplift to the median forecasts for 2021/2022 which would accompany a more hawkish looking dot plot/communique. The forecasts just look plain wrong now.