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Global markets have defied expectations as the US Federal Reserve and several central banks around the world prepare to slow monetary easing policy. The U.S. central bank’s Federal Open Market Committee (FOMC) on Wednesday announced plans to gradually reduce quantitative easing (large monthly asset purchases) and end the program by March 2022. In addition, FOMC members have decided to keep interest rates at zero but expect at least three rate hikes next year.
Federal Reserve presents plan to cut asset purchases and rate hikes for 2022
Since the start of Covid-19 in the United States, the United States Federal Reserve has launched a policy of monetary easing unlike any other in history. The move caused inflation to spike, and analysts and economists around the world have criticized the Fed’s decisions in recent times. The FOMC concluded a two-day meeting on Wednesday and the central bank said it plans to cut its bond buying program to $ 30 billion per month by January. This month, the Fed will mobilize $ 90 billion in quantitative easing (QE) purchases compared to $ 120 billion last month.
In addition to the reduction in quantitative easing, FOMC members also clarified that the central bank has plans for three rate hikes next year. It expects three in 2022, two more rate hikes in 2023 and two more interest rate hikes in 2024. The Fed has not, however, blamed the rise in inflation in the United States on its QE, but has rather, noted that inflation was caused by problems with supply and demand.
“Supply and demand imbalances linked to the pandemic and the reopening of the economy continued to contribute to high levels of inflation,” the FOMC said on Wednesday. Additionally, FOMC statements indicate that Covid-19 and the new coronavirus variants have greatly affected the U.S. economy.
‘Buy Rumors, Sell Facts’: Global Markets, Bitcoin Rise After FOMC Meeting
Despite the cut statements and the revelation that there will likely be three rate hikes next year, the Fed’s comments saw a market reaction opposite to what was expected before the cut was announced. The Nasdaq, NYSE and Dow Jones all registered gains after the FOMC meeting ended. Speaking to Bitcoin.com News, Alex Kuptsikevich, senior market analyst at Fxpro, said the Fed “held the more belligerent edge in market expectations” on Wednesday.
“The FOMC has announced that it will double the pace of the reduction,” Kuptsikevich said. “The committee’s updated forecasts suggest three key rate hikes in 2022, compared to none just six months ago. We also heard that balancing the Fed’s targets allows for a rate hike to begin before full employment is reached due to higher inflation.
“The Fed chairman also described the valuations of financial assets as ‘high’,” the market analyst continued. “This is a clear signal of a willingness to hurt the markets, as it did in 2018. Speaking at the press conference, Powell noted that the FOMC did not yet have a consensus on the timing of the reduction in the Fed’s balance sheet. In the previous round of stimulus slowdown, this was not a real problem long after the rate hike started – The dollar index rallied in the first minutes after the FOMC, hitting July 2020 highs but then descending again, losing 0.8% from peak at time of writing. “
Kuptsikevich added:
The feeling is that the markets braced for risk taking, expecting the Fed to weaken, and did not retreat despite the Fed’s rhetoric. Some commentators think we’ve seen a classic ‘buy rumors, sell facts’ reaction. However, the rise in “growth” stocks is more testament to the market mood to end a strong year on a happy note. At the same time on the dollar, a gripping wave of growth over the past six months appears to have started, although the Fed’s stance is much more hawkish relative to other central banks in the DXY basket.
Even bitcoin (BTC) defied expectations on Wednesday, as the price shot up a notch following the announcement of the FOMC’s hawkish plans. Just before the meeting ended, BTC was trading hands for $ 46,590 per unit and after the FOMC meeting concluded, BTC prices jumped to $ 49,420 on Wednesday afternoon (EST).
Bank of England raises benchmark rate, European Central Bank keeps rates low, U.S. jobless claims remain above pre-pandemic levels
In addition to the FOMC meeting, the Bank of England (BoE) raised its key rate to 0.25% from 0.1%. No other central bank has done so yet and the European Central Bank, like the Federal Reserve, has maintained its removed benchmark interest rate for now.
The European Central Bank has explained that it will not increase lending rates until inflation stabilizes. In addition, weekly jobless claims in the United States released by the Department of Labor show an increase last week. The Department of Labor report shows jobless claims are still well above pre-pandemic levels.
Tags in this story Alex Kuptsikevich, analyst, Bank of England, Reference rate, Bitcoin, BoE, Central banks, Coronavirus, COVID-19, Dollar Index, dow jones, economy, economists, Economy, European Central Bank, Fed, Reserve federal, FOMC, FOMC meeting, fxpro, world markets, inflation, jobless claims, monetary easing, nasdaq, NYSE, QE, quantitative easing, stimulus, stocks, supply and demand, US economy
What do you think of the Federal Reserve’s taper process and the discussions about raising the benchmark rate three times in 2022? What do you think of the hike in its key rate by the Bank of England for the first time since the start of the Covid-19 pandemic? Let us know what you think of this topic in the comments section below.
Jamie redman
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