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China curveball ahead of the Fed this week?

If Fed policymakers need an excuse to stay away from taper mentions, China fears are giving them an out

I reckon a lot will depend on the market mood in the next few days and it may well be a play-by-ear thing with the Fed perhaps looking to the PBOC and Chinese officials to see if they will be doing anything on Wednesday to calm fears.

Keep in mind that Chinese markets are closed today and tomorrow.

The taper timeline for the Fed coming into this week is that they will acknowledge the start of taper discussions in September before moving on to officially taper in November/December; all of which are subject to market conditions though.

But if the looming threat of China hangs over the market and with the potential fallout and contagion risks still rather unknown, there’s a good excuse for Fed policymakers to “play it safe” this week and give a look see on what happens next.

If contagion fears start to calm down going into the FOMC meeting, I’d expect the Fed to keep with the taper timeline but should the anxiety and angst grow stronger in the days ahead, there is a consideration for the Fed to try and not upset the market further.

I’d still argue that policymakers are going to try and keep the talk up on taper but if this whole China ordeal proves to be a bigger risk than what the market anticipates now, it may be that the Fed doesn’t get the chance to taper at all this year.

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