During today's session Williams, the head of the Fed from New York, spoke about monetary policy. It is worth mentioning that the NY FED chairman is always a voting member in the FOMC, and Williams himself is seen rather as a dovish member, although at the same time he can also show what the current consensus looks like. That is why it is worth taking a look at his statements:
- Faster tapering now makes a lot of sense, but Williams sees no benefit from further accelerating tapering next year
- The Fed will be flexible next year and will follow the data
- He expects the labor market data to improve drastically
- The outlook for next year is really very good, the unemployment rate should drop to 3.5% by the end of 2022 (natural unemployment rate)
- Inflation may play a key role in terms of interest rate increases. Tapering will enable the introduction of interest rate increases next year
- Interest rate increases will show where the US economy is in the economic cycle
- Asset prices are very high in terms of historical averages, a very negative correction cannot be ruled out
- High asset prices pose a risk, but not for financial stability
Very interesting words and may suggest that the Fed will be determined to achieve the goal of price stabilization, if the labor market will actually see a further improvement. Theoretically, the Fed might not worry about larger stock market corrections, although in the past such moves led to a temporary change in the narrative. Anyway, it seems that the outlook for the dollar and bond yields is rather certain, while gold and the stock market will remain a mystery for now and will depend rather on data such as economic activity in the US and in the world.
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EURUSD - the dollar clearly appreciates during today's session, recovering losses related to the Fed's decision, which, however, remains a support for the USD in the longer term. You could say there was a temporary profit taking on the dollar and it seems that the currency pair returned to the main trend. Source: xStation5
