Federal Reserve Sets Timing for Tapering, Interest Rate Increase
The US Fed said it could “easily” start tapering after its November meeting. Interest rates are set to rise three times by 2023.
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- The Federal Reserve announced it could begin the tapering process at its November meeting
- Interest rates set to rise at least three times by 2023
The Fed Announces Tapering Could Start in November
The US Federal Reserve, America’s central bank, announced yesterday it is ready to start unwinding its pandemic monetary support. At the Fed’s next meeting, scheduled for Nov. 2-3, policymakers at the central bank could officially begin the tapering process.
That became clear at the press conference hosted by Federal Reserve Chairman Jerome Powell on Wednesday. Mr. Powell presented the Fed’s outlook on the economy as he commented on the conclusions reached by the Federal Open Market Committee (FOMC) at the two-day meeting.
In his speech, the Fed Chairman said the economy has made enough progress that would justify a reversal of the easy-money policies. On that note, Mr. Powell said the US central bank was prepared to “easily move ahead” by setting a specific timeline for tapering at their November meeting.
Once started, the Fed chief emphasized, the tapering process would aim to see all stimulus is fully withdrawn around the middle of next year.
Jerome Powell Says US Economy Has Progressed Substantially
Since the pandemic hit the US economy in March 2020, the Federal Reserve has been injecting as much as $120bn in monthly asset purchases. Fed officials vowed to continue doing that “until substantial further progress has been made toward the Fed’s maximum employment and price stability goals.” The FOMC statement released yesterday, before Mr. Powell’s speech, notes that over the months, “the economy has made progress toward these goals.” As a result, the new economic projections show the majority of Fed officials expect to see interest rates rise at least three times by 2023.
“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the FOMC statement declares. “These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.”
Jerome Powell reiterated the Committee’s conclusions and said Fed’s decisions will be guided by the Covid-19 developments, the pace of economic recovery, and the rate of inflation.
Investors Flock to Stocks on Improved Market Sentiment
As a result of the highly-anticipated Fed event, investors increased their bets on stocks. The Dow Jones Industrial Average pushed higher by 1%. The S&P500 and the Nasdaq Composite also rallied by roughly 1% each.
The US dollar initially appreciated after the event. However, the greenback slipped against its counterparts on the currency board. Gold surged about $20 to levels near $1,790 per troy ounce shortly after the speech. Bearish pressure weighed a few hours later and the precious metal is now trading near $1,765.
European Markets Rise, Bitcoin Jumps Over $44K
European markets today are looking optimistic. The Europe-wide Stoxx 600 benchmark opened higher by about half a percent, following a strong move a day earlier. Indexes for individual economies in the bloc are hitting their stride as all are floating in the green early Thursday.
In cryptocurrency, the price of bitcoin pushed higher in the early hours of the session. The original digital currency reached an intraday high of $44,500 per coin. Ether, the second-largest token in crypto, has surged about $500 over the past two days. The Ethereum token is now trading near $3,100 per coin.