Welcome to Thoughts on the Market.

I'm Ellen Zentner, Chief US Economist for Morgan Stanley Research.

And I'm Matt Hornbach, Global Macros Strategist for Morgan Stanley.

And on this episode of the podcast, we'll be talking about last week's surprisingly

hawkish commentary from the Fed and the Path for Fed Policy Flexibility.

It's Tuesday, June 22nd at 10 a.m. in New York.

So Ellen, as some listeners are no doubt aware, the dominant market conversation over the

past week has been around last week's FOMC meeting and press conference.

The Fed laid the groundwork towards tapering its asset purchase program that it began at

the start of the COVID-19 pandemic in order to stabilize the economy.

It also issued projections suggesting increased chances of a rate hike next year.

So I want to get your take on what any taper timeline might look like, but first, maybe

let's start with an explanation of what tapering is and why the Fed is starting this discussion

today.

When I think about the Fed's balance sheet, it really is another tool in the toolbox.

The same as how it uses communication and rate increases or rate decreases.

It also uses its balance sheet.

And when it began adding to its balance sheet during COVID, it was really to depress longer

term interest rates, send a message of how long policy would remain accommodative and

help keep financial conditions very supportive for the outlook.

However, we're projecting GDP growth in excess of 8% this year.

The unemployment rate continues to decline consumer confidence and business confidence has

...