Global markets have bucked predictions as the US Federal Reserve and several central banks around the world prepare to slow monetary easing. On Wednesday, the Federal Open Market Committee (FOMC) announced that it would reduce quantitative easing (large monthly asset purchases) and end the program by March 2022. In addition, FOMC members decided to keep rates at zero, but with at least three rate hikes in the next year.
Federal Reserve outlines plan to reduce asset purchases and rate hikes for 2022
Since the Covid-19 outbreak in the United States, the Federal Reserve has launched monetary easing like no other in history. The move has to be one Inflationary surge and analysts and economists worldwide have criticizes the Fed’s decisions lately. The FOMC closed a two-day meeting on Wednesday, as did the central bank explained that it plans to reduce its bond purchase program to $ 30 billion a month by January. This month, the Fed will mobilize $ 90 billion in quantitative easing (QE) purchases, up from $ 120 billion a month earlier.
In addition to reducing the QE, the FOMC members also have detailed that the central bank plans three rate hikes in the next year. It expects three rate hikes in 2022, two more rate hikes in 2023 and two more rate hikes in 2024. However, the Fed did not attribute rising inflation in the US to its quantitative easing, but instead found that inflation was caused by problems with . what caused supply and demand.
“Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to heightened levels of inflation,” the FOMC said on Wednesday. In addition, the FOMC statements said Covid-19 and new coronavirus variants have had a major impact on the US economy.
“Buy Rumors, Sell Facts”: Global Markets and Bitcoin Rise After FOMC Meeting
Despite the taper statements and the announcement that there will likely be three rate hikes in the next year, the Fed’s comments showed a market reaction contrary to what was expected prior to the taper announcement. Nasdaq, NYSE and the Dow Jones all posted gains after the FOMC session closed. Speaking to Bitcoin.com News, Alex Kuptsikevich, Fxpro’s senior market analyst, said the Fed “held the most restrictive market expectations” on Wednesday.
“The FOMC announced that it would double the pace of tapering,” said Kuptsikevich. “The committee’s updated projections point to three rate hikes in 2022, though it hadn’t expected any six months ago. We also heard that the balance of the Fed’s targets, due to higher inflation, allows rates to start hike before full employment is reached. “
“The Fed chairman also called asset valuations ‘increased’,” the market analyst continued. “This is a clear signal of willingness to harm the markets, as he did in 2018. During the press conference, Powell noted that the FOMC still has no consensus on when the Fed will cut its accounts. In the previous economic cycle, this wasn’t a real issue long after the rate hike began – the dollar index rallied within the first minutes of the FOMC, hitting the highs of July 2020, but then turned back down. Loss of 0.8% from the high at the time of writing. “
It feels like markets prepared for risk taking by expecting softness from the Fed and not yielding despite the Fed’s rhetoric. Some commentators believe we’ve seen a classic reaction like “buy rumors, sell facts”. The rise in “growth” stocks, however, tends to suggest market sentiment to end a strong year happily. At the same time, the dollar appears to have started a wave of profit-taking over the past six months, although the Fed’s stance is significantly more restrictive compared to other central banks in the DXY basket.
Also Bitcoin (BTC) defied expectations on Wednesday as the price climbed one notch following the announcement of the FOMC’s restrictive plans. Just before the end of the meeting BTC traded hands for $ 46,590 a unit and after the FOMC session closed, BTC Prices jumped to a high of $ 49,420 on Wednesday afternoon (EST).
Bank of England raises interest rates, European Central Bank keeps rates low, US unemployment claims still above pre-pandemic levels
In addition to the FOMC meeting, the Bank of England (BoE) raised its key rate from 0.1% to 0.25%. No other central banks have done this before, and the European Central Bank, like the Federal Reserve, kept its key interest rate down for the time being.
The European Central Bank said it will not raise lending rates until inflation has calmed down. In addition, the weekly US jobless claims released from the Ministry of Labor point to an increase in the past week. The Ministry of Labor report shows that unemployment claims are still well above pre-pandemic levels.
What do you think of the Federal Reserve’s tapering process and the discussions about raising the key rate three times in 2022? What do you think of the Bank of England raising its key rate for the first time since the beginning of the Covid-19 pandemic? Let us know what you think on this matter in the comments below.
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Source: Crypto News Austria