FOMC Rate Announcement

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What is it?

In the US, the Federal Reserve has responsibility for setting monetary policy. The Federal Open Market Committee (FOMC) holds eight regularly scheduled meetings each year. These occur approximately every six weeks and are immediately followed by an announcement of any changes to monetary policy.

Why is it important?

These meetings are considered to be the single most influential event for the financial markets. Changes to monetary policy most often relate to changes in the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. The federal funds rate acts as a yardstick for all US rates and adjustments by the Fed to the rate produce a chain of events that influence other short-term interest rates, FX rates, long-term interest rates and eventually a host of economic factors, such as employment, output and prices of goods and services. Changes in the federal funds rate, and the associated knock-on effect to other rates and to bonds, can have a strong effect on investment trends: a rise in rates, for example, which leads to higher yielding bonds and better returns for other fixed-income products, can make stocks less attractive. Moreover, higher rates will slow consumers’ high-level purchases (most significantly houses and cars) and will have a major bearing on companies that have high levels of debt or businesses that have to pay financing on high inventory levels. Ultimately, lower interest rates are bullish for the economy and financial markets, whereas higher interest rates are bearish.

 

Time of the event: 3rd November 2021 at 18:00 (UK Time)

What are your thoughts and views for the US Dollar ? Share your analysis.

 

All the best - MongiIG

 

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FOMC: Time is here to taper bond buying, not to hike rates

NEW YORK (Reuters) - The Federal Reserve on Wednesday said it will begin trimming its monthly bond purchases in November with plans to end them in 2022, but held to its belief that high inflation would prove "transitory" and likely not require a fast rise in interest rates.

However, the U.S. central bank nodded to global supply difficulties as adding to inflation risks, saying that those factors "are expected to be transitory," but would need to ease to deliver the anticipated drop in inflation. A small change in language indicated Fed officials see the process taking longer.

The S&P 500 rose to session highs after Fed Chairman Jerome Powell stressed it was not time to raise interest rates because the labor market had not healed, during questioning from reporters after the FOMC statement.

For more on this article click this link: FOMC Statement

 

All the best - MongiIG

[MongiIG]

FOMC meeting review: Six key takeaways from the latest meeting

Everyone was glued to their devices overnight to watch what the US Federal Reserve had for the markets, and it would seem market participants liked what they saw.

Source: Bloomberg

 

Shares Commodities Federal Reserve Inflation United States Central bank

 Kyle Rodda | Market Analyst, Australia | Publication date: Thursday 04 November 2021

For the most part, the Fed delivered what was expected of them on policy at its latest meeting, but it was the guidance and commentary that really stoked risk appetite.

Here are a few of the main takeaways from the FOMC.

Tapering will begin this month

As expected, the Fed will begin the process of tapering its balance sheet, starting in the middle of this month. The taper will be at a US $15 billion per month clip, comprising US $10 billion worth of Treasuries, and US $5 billion mortgage backed securities. The Fed implied this will see the process of tapering end by mid next year. But the central bank also stated the tapering isn’t on a fixed path and can be adjusted to accommodate for changing economic circumstances.

Powell pushes back on future rate hikes

While markets were worried about the prospect of rate hikes being guided sooner than had been done previously, US Fed Chair Powell pushed back on the notion an end to tapering necessitated an immediate commencement of interest rate hikes. He said the central bank can be “patient” when it comes to interest rates, and that “no direct signal” should be derived about the path for rates from the bond buying program.

Inflation more persistent, but will ease in 2022

Inflation risks underpinned much of the Fed’s logic on policy and its outlook, with the central bank suggesting “substantial further progress” had been made on price growth. Chair Powell watered down fears of a faster hiking cycle because of persistent inflation, suggesting that supply-side disruptions would subside, and the risk of a wage-price spiral was low, as the labour market returns to equilibrium following the pandemic. Powell was certainly less blasé about inflation going forward, it must be said, changing his stance that it was simply “transitory”, to one that was driven by “transitory factors”. By his latest estimations, inflationary pressures ought to ease by the second or third quarter next year.

There remains slack in the US labour market

The jobs market was less of a feature of the Fed’s commentary, but still remained central to its policy considerations. Chair Powell stated that “there’s still ground to reach” on maximum employment, but suggested that could be achieved by next year, implicitly dismissing fears that the jobs market may already be close to full employment on the basis that labour shortages ought to subside as the jobs market normalizes following the pandemic.

Markets turn bullish in response to decision

The markets reacted to the decision overnight with an emphatic “risk-on” move. The VIX retested the 14-level, just before closing slight above 15, while stocks surged across the board, with the US 500, Wall Street, US Tech 100 and US Russell 2000 all hitting record highs for a second straight day, led by a rally in consumer stocks. The US Dollar also broadly declined, boosting riskier currencies like the AUD/USD. US yields rose across the board, but reassuringly, the curve bear steepened, as traders became slightly anxious about rate hikes, with benchmark 10-year yield finishing five basis points higher and at 1.6%. Gold prices also plunged around 1%.

Rate markets still imply a mid-2022 lift-off

For all the relief, so clearly evident in financial markets last night, there does remain some wariness about Fed policy, and whether it has the control over inflation and future rate hikes that it states. Real yields dropped as inflation expectations in the market remain relatively high, while market pricing is still implying that, on the balance of probabilities, the Fed will begin its next hiking cycle in the middle of next year.

Source: Refinitiv