Topline
The Federal Reserve concluded its two-day policy meeting on Wednesday by announcing plans to steadily taper off its $120 billion bond-buying program, a move widely expected by economists as the central bank begins to pull back on its pandemic-era stimulus to support the economy.
Key Facts
The Federal Reserve left interest rates unchanged, saying that it would start scaling back its bond-buying stimulus program later this month and end it by June 2022, “in light of the progress the economy has made.”
The decision marks the Fed’s first step towards reducing the historic level of support it had been providing markets and the U.S. economy since the Covid-19 pandenmic.
The central bank said it would begin reducing its bond purchases by $15 billion each month—with $10 billion in Treasuries and $5 billion in mortgage-backed securities—but that it is also prepared to adjust the pace of purchases based on any changes to the economic outlook.
Fed officials said in a statement that they still anticipate inflation, which remain near 30-year highs, as “transitory”—with the central bank clarifying that pressures are “expected” to be temporary.
“Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors,” the central bank admitted in its statement.
Economic growth slowed in the third quarter due to supply chain constraints and inflation, which Fed chairman Jerome Powell expects to continue until mid-2022.
What To Watch For:
The stock market was relatively flat ahead of the Fed meeting, with the Dow down 100 points—but major indexes all rallied somewhat after the announcement. The Dow is now down just 0.1%, while the S&P 500 and Nasdaq Composite have risen 0.1% and 0.4%, respectively. “Markets were prepared for a far more aggressive taper than what was ultimately delivered—the Fed has zero intentions of draining liquidity too quickly and derailing the recovery,” says Jamie Cox, managing partner at Harris Financial Group.
Key Background:
Going into the Fed meeting, the two issues weighing most heavily on the minds of investors were inflation and interest rate hikes. Inflation fears have especially spiked over the past few weeks, with the market already pricing in several rate hikes for early 2022. Third-quarter corporate earnings have so far proved resilient despite investor concerns about rising costs, labor shortages and inflation, however: Of the 362 companies in the S&P 500 that have reported so far, 81% have beaten expectations according to data from Refinitiv. Solid earnings have also helped boost stocks to record highs recently, with the S&P 500 rising over 5% in October for its best month so far this year.
Crucial Quote:
“Our asset purchases have been a critical tool” in supporting the economy, Fed chairman Jerome Powell said in his press conference. “We are prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”
Chief Critic:
“The fact [Fed officials] continue to describe inflation as transitory suggests they’re going to continue to stay lower [on interest rates] for longer than many are anticipating,” Michael Arone, chief investment strategist at State Street Global Advisors, told CNBC.
Further Reading:
Dow Closes Above 36,000 Amid Rally Ahead Of Federal Reserve Meeting (Forbes)
Dow, S&P Post New Record Highs As Investors Await Federal Reserve’s Stimulus Decision (Forbes)
https://news.google.com/__i/rss/rd/articles/CBMid2h0dHBzOi8vd3d3LmZvcmJlcy5jb20vc2l0ZXMvc2VyZ2Vpa2xlYm5pa292LzIwMjEvMTEvMDMvZmVkZXJhbC1yZXNlcnZlLXNjYWxlcy1iYWNrLXBhbmRlbWljLXN0aW11bHVzLXdpbGwtZW5kLWJ5LWp1bmUv0gF7aHR0cHM6Ly93d3cuZm9yYmVzLmNvbS9zaXRlcy9zZXJnZWlrbGVibmlrb3YvMjAyMS8xMS8wMy9mZWRlcmFsLXJlc2VydmUtc2NhbGVzLWJhY2stcGFuZGVtaWMtc3RpbXVsdXMtd2lsbC1lbmQtYnktanVuZS9hbXAv?oc=5
2021-11-03 18:19:54Z
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