The Bank of England’s actions have no immediate implications for federal policy, the analyst says

The Bank of England’s dramatic about-face decision to temporarily buy bonds to stabilize a volatile bond market has no immediate implications for the Federal Reserve, a former U.S. central banker said Wednesday.

“Unless other sovereign markets adjust, we don’t expect the Fed or other central banks to follow suit,” said Roberto Perelli, currently head of global policy at Piper Sandler.

Read: After the Bank of England went in to buy, UK bond yields fell

“The BOE’s intervention is not surprising – disorderly market action threatens to destabilize financial institutions (including pension funds) and the economy, so something must be done,” Perli said.

“In addition, the BoE is one of the few central banks with a clear objective of financial stability, which makes its decisions more understandable,” he said.

In the year Since the start of the pandemic in March 2020, the Fed has been buying US Treasuries and mortgage-backed debt, doubling its balance sheet to $8.9 trillion.

But the central bank reversed course earlier this year in an effort to fight inflation, which has hit a 40-year high. The bank is now allowing $90 billion of securities to stretch its balance sheet each month in a process known as “quantitative tightening.”

He said the Fed was not close to stopping or reversing rate tightening because of the Bank of England’s actions.

The U.S. Treasury market is not dysfunctional, he said, and unless the situation changes, the Fed won’t do anything different. With inflation high, asset purchases are far from a logical policy move for the Fed, he said.

The yield on the 10-year Treasury note TMUBMUSD10Y;
It retreated on Wednesday, briefly hitting 4%.

Perley said this may be a temporary reprieve from upward pressure, as yields will ultimately be driven by the Fed’s next rate hikes.

The Fed’s “point-plate” showed that officials expect the benchmark rate to reach 4.25%-4.5% by the end of the year, from the current range of 3%-3.25%.

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