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Fed announced $15 billion per month tapering
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Real economic growth slowed
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Bottlenecks are expected to last into next year but ease throughout
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Too early to talk about rate hikes
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US indices hit record highs, USD weakens
The Federal Reserve announced a decision to taper asset purchases by $15 billion per month. A $10 billion reduction will be made to Treasury purchases and $5 billion to MBS purchases. Interest rates were left unchanged as expected.
Fed Chairman Powell tried to explain today's policy decision during a press conference. Powell said that the focus of today's meeting was on tapering and not raising rates. He stressed that it is not the time yet for rate hikes but they cannot be ruled out should conditions improve. Fed Chairman said that real economic growth has weakened recently with supply bottlenecks playing a big role. He also noted a lower participation rate that masks softness in the job market. A $15 billion per month reduction pace will be maintained if the economy develops in-line with expectations. If not, adjustments to the pace will be made. Current pace assumes end of asset purchases by middle of the next year.
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Create account Try a demo Download mobile app Download mobile appDuring a Q&A session Powell said that maximum employment could be reached next year. There is no evidence of a wage-price spiral but it's an issue that the Fed will watch closely. Powell also repeated that the Fed can be patient when it comes to rate hike decisions. Powell said that he cannot provide more details on changes in QE taper pace but assured that he does not want to surprise markets with its decisions. Powell also seems to have back down from his "inflation is transitory" calls. While he still expects inflation to wane over time, he also believes that it will stay elevated for some time. Overall, inflation wasn't a topic that was often discussed during the conference. Powell hinted strongly that full employment takes precedence over inflation mandate.
Market reaction
Equity indices extended upward move during Jerome Powell's presser. US500 climbed above 4,640 pts, US100 jumped above 16,000 pts, US2000 cleared 2,400 pts mark, while US30 approached 36,000 pts area. All 4 US indices traded at fresh record highs.
US dollar saw limited reaction to the first 15 minutes of the press conference but began to weaken later on. EURUSD moved above 1.1610, USDJPY dropped below 113.90 and USDCAD tested 1.2390.
US2000 reached fresh all-time highs today and extended the upward move during Powell's presser. The index topped 2,400 pts for the first time in history. A textbook range of the upside breakout from recent triangle pattern points to an upward move above 2,500 pts. Source: xStation5
EURUSD jumped above 1.1610 during Powell's press conference, the highest level in almost a week. However, the upward move was halted there for now. Source: xStation5
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