NEW YORK (Reuters) – The Federal Reserve on Wednesday paved the way for a “soon” cut to its monthly bond purchases and signaled that interest rate hikes could follow faster than expected, nine of the 18 policymakers in the US central bank predicting that borrowing costs will have to rise in 2022.
The stocks, which were included in the Fed’s latest policy statement and separate economic projections, represent a hawkish trend from a central bank that sees inflation this year at 4.2%, more than double its target rate, and positions itself to act against it. .
The current target interest rate has been kept within a range of 0% to 0.25%.
Fed Chairman Jerome Powell will elaborate on the latest policy statement at a press conference at 2:30 p.m. EDT (6:30 p.m. GMT).
STOCKS: The S&P 500 extended a rally and was up 1.31% for the last time
BONDS: The yield on 10-year US Treasuries was easier at 1.3023% and the 2-year yield eased to 0.2180%
FOREX: the dollar index slipped 0.2%
SAM STOVALL, CHIEF INVESTMENT STRATEGY, CFRA Research, NEW YORK
âIt’s probably a bit more hawkish than many would have imagined, recognizing that if the economy continued to grow, as we’ve seen, that would warrant a cut. You could say it’s an announcement of provisional reduction even though they lowered their 2021 GDP. forecast. “
âThe reason the Fed is shrinking is because the economy and corporate earnings are strong enough to withstand it. So investors are basically saying let’s buy stocks because the economy is strong and the Fed won’t hike rates for a year or more. “
“The Fed is not going to fall behind and will not have to surprise us by raising its rates much faster than currently expected.”
JOHN CANAVAN, CHIEF ANALYST, OXFORD ECONOMICS, NEW YORK
âBasically what we’re seeing here is a flattening of the (US Treasury yields) curve in response to the summary of economic projections pushing forward the Fed rate hikes. The Fed is now forecasting a rate hike in 2022 as a forecast. median, which is rising Therefore, what we are seeing is a bit of pressure on the front end (of the curve), while the long end sees the Fed slightly more hawkish as a positive sign to keep inflation under control as well as a potential risk that the Fed will act too quickly and act to slow the economy in the years to come. “
“We saw a slight acceleration in the flattening of the curve due to the idea that we saw a spike in inflation and some of the risks associated with the slowdown in the economy in the third quarter.”
STEVEN VIOLIN, PORTFOLIO MANAGER, FLPUTNAM INVESTMENT MANAGEMENT COMPANY, WELLESLEY, MASSACHUSETTS
“It’s an interesting time here, the decrease in QE seems very likely now in November, but it was something taken for granted and remains formulated in many qualifying criteria in case various risks emerge, that it it’s debt. Ceiling debate, COVID outlook, Chinese real estate market intervention. Although the Fed’s increase in projections for future interest rates appears to be more of what caught the market by surprise. margin, this remains consistent with our view that the Fed is likely to continue to let inflation soar and stay anchored in the same measured pace as in previous cycles. This only increases the risk of inflation. which we take seriously, as we find that part of the supply chain and labor shortages clearly do not resolve with the end of unemployment benefits. , there are many powerful disinflationary forces, but at the moment they are clearly offset and the risk is that they become embedded in consumer expectations. “
âAt the moment the markets seem to be taking this in stride with a relatively positive reaction from the stock market and longer-term bonds, as far as the outlook for inflation goes, I’m not sure that’s a positive development. . “
“This is also the measured pace, a certain increase in points was expected by the market and incorporated to a certain extent but there was no acceleration, in fact there is a deceleration, which perhaps indicates being that some committee members have downgraded their final rate, it’s hard to know, but the current points, as they show less increases in recent years, and this is the first glimpse we have in the 2024 projections. So it is a notable development which is perhaps what motivates the positive response of long-term interest rates and the changes in the currency markets. “
TOM GARRETSON, SENIOR PORTFOLIO MANAGER, RBC WEALTH MANAGEMENT, MINNEAPOLIS
âOverall this is exactly what we expected, the Fed has taken one step closer to a formal cut announcement, and it will likely happen in the next or two next meetings.
âThe key behind the potential rate hike was upgrading their inflation outlook. There are signs that inflationary pressures are going to be transient, but they are more persistent than expected. This is the key factor as to why the equilibrium has shifted towards a potential rising rate in 2022 compared to 2023.
âWe are watching the yield curves flatten. The Treasury market interprets it as a hawkish surprise.
“It was very much in line with expectations. Powell will use the press conference to reiterate the idea that tapering is coming in several months. This is what I expected, neither too hawkish nor too accommodating.”
JOSEPH LAVORGNA, CHIEF ECONOMIST AMERICAS, NATIXIS, NEW YORK
âUnless we know who’s who, what we don’t know, I’m not sure the dot-plot accurately reflects the thinking of the Fed. I don’t think the Fed’s tightening will be as aggressive as they expect. It will be difficult for them to carry out this plan as the economy slows down next year.
(Compiled by the US Finance & Markets Breaking News team)
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