Weekly Market Commentary 09/22/2017

News on the policy front competed with hurricane activity for headlines this week, although the latter’s effects on the economy are only beginning to be felt. As expected, the Federal Reserve confirmed its well-telegraphed intention to start shrinking its $4.2 trillion portfolio of mortgage-backed and Treasury securities at this week’s policy meeting. The unwinding is set to start in October, ushering in a long-term process that is intended to be gradual and predictable. In Fed Chair Yellen’s words from last June, she hopes the deliberate shrinkage will be like “watching paint dry”, a sentiment designed to make the operation as nondisruptive to market conditions as possible. Compared to the taper tantrum in the spring of 2013, the reaction to the news in the bond market this time was much more subdued.