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November 27, 2021
The Fed Chairman Jerome Powell indicated that the organization would speed up the tapering rate. In a testimony done in tuesday evening, the U.S. central bank chief said something.
He declared that the pace of reductions in bond purchases could be implemented ahead of the schedule announced in early November. At this point, the economy is very strong.
Besides that, the inflationary pressures are very high," Powell said, Therefore, in his view, it is appropriate to consider the completion of the asset purchase reductions that they had announced at last November's meeting.
It came with the possibility of (ending it) a few months sooner. He hope That they will discuss it in the next meeting (FOMC meeting December - red). So far, the plan like that is expected.
In the previous schedule, the tapering of the assets was scheduled to be completed around June 2022. However, if the committee chooses to accelerate it, then everything will be not the same.
It means that the tapering of the assets may be completed in March or April. Powell added that the bond-buying program (quantitative easing) has successfully supported the America’s economic activity.
Therefore, along with the progress of the economy, the urgency of quantitative easing has been reduced. Powell also no longer uses the word "temporary" (transitory) in mentioning rising inflation.
The need for (stimulus) is clearly diminishing as the economy continues to strengthen. As we can see, inflationary pressures continue significantly in the market so far.
That's why we announced that we were going tapering. And that's why anyway, we said that we're going to discuss accelerating tapering a little faster in the next meeting,
Powell did not specify the speed of tapering acceleration to be applied. However, Citigroup economists estimate that the U.S. central bank will double the amount of tapering.
It means that the value is from $15 a month to $30 billion per month. The acceleration of tapering often triggers the assumption that a rate hike can be implemented at any time in a faster time.
The market is currently projecting a 0.25% Fed rate hike in 2022. However, Powell stressed that the acceleration of tapering does not mean any indication of the speed in rate increases.
Following the Powell's statement, bond yields rallied while the U.S. dollar fell along with weakness in the stock market. As the news broke, the USD Index slipped by 0.31% to 95.89.
For your information, its the lowest level since Nov. 19. Elsewhere, the The USD/JPY exchange rate had strengthened earlier in the trading day due to news from the President Joe Biden.
He promised not to implement another lockdown in the America. However, the recent announcements from some vaccine makers have again raised concerns in the market.
The emergence of the Omicron variant also forced the market participants to reevaluate the projected rate hike. In a draft testimony to be delivered today, Jerome Powell revealed something.
He said that the Omicron variant could result in a high inflation rate to a last longer period. Previously, he also stated that the labor market is very vulnerable to Omicron.
The interest rate increase may be done as soon as possible
Powell's remarks added urgency to raise the interest rates more quickly. In fact, the reaction of the public and a number of government policies to cope with the spread of the virus may have hampered economic growth in the same period.
Money markets are currently accounting for a pretty good chance of a Fed rate hike in July 2022. However, an even higher chance is pegged in September 2022.
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