Global Markets, Bitcoin Defy Expectations After Fed’s Hawkish Taper Plan Announcement
The U.S. Federal Reserve has initiated a unique monetary easing policy since the inception of Covid-19. This has resulted in a spike in inflation. Analysts and economists around the world have criticized Fed’s decisions recently. On Wednesday, the FOMC met for two days. The central bank stated that its bond purchasing program will be reduced to $30 billion per monthly by January. The Fed will purchase $90 billion of quantitative easing (QE), as opposed to $120 billion last month.
The FOMC members described the plans of the central bank for three rate increases next year. The Fed expects to increase interest rates by two in 2022 and three more in 2023. However, the Fed didn’t blame rising inflation in the U.S. for its QE, but rather noted that it was due to problems with supply and demand.
The FOMC stated Wednesday that’supply and demand imbalances related the pandemic as well as the reopening the economy have continued contributing to high levels of inflation’. The FOMC statements also stated that Covid-19 and other coronavirus variants have had a significant impact on the U.S. economic system.
“Buy Rumors, sell Facts”: Global Markets and Bitcoin Rising Following the FOMC Meeting
The Fed’s comments about the taper announcement and disclosing the likelihood of three rate increases next year saw the market react in a way that was opposite to what had been predicted. After the FOMC meeting ended, the Dow Jones, NYSE and Nasdaq all saw gains. Alex Kuptsikevich from Fxpro, senior market analyst, stated that the Fed held the most hawkish edge in market expectations on Wednesday.
Kuptsikevich stated that the FOMC had announced it would double its tapering pace. The committee’s latest forecasts indicate three key rate increases in 2022. However, six months ago it had not expected any. We were also informed that the Fed’s balance targets allow a rate increase to start before full employment is achieved due to higher inflation.
The market analyst said that the Fed chairman called financial asset valuations “elevated”. This is a clear sign that Powell wants to harm the markets as he did in 2018. Powell stated that the FOMC had not reached a consensus regarding the timing of the Fed’s balance sheet reduction. This was not an issue in the previous stimulus winddown cycle. The dollar index rose within minutes of the FOMC’s announcement, reaching the July 2020 highs, but then it retreated 0.8% from its peak at the time.
Kuptsikevich also added:
Markets have been anticipating a risk-on and expecting softness from Fed. They have not relented despite Fed’s rhetoric. Some analysts believe that we witnessed a classic ‘buy facts, sell rumours’ reaction. The rise in ‘growth stocks’ is more indicative of the market’s desire to end a strong year with a happy note. The dollar has seen a surge in profit-taking growth over the past six months, even though the Fed’s stance seems more hawkish than other central banks within the DXY group.
Even Bitcoin (BTC) shattered all expectations Wednesday as the price jumped a notch following the FOMC’s hawkish announcements. Just before the meeting was over, Bitcoin was being traded for $46,590 each unit. After the FOMC meeting, Bitcoin prices rose to $49,420 on Wednesday afternoon (EST).
Bank of England raises benchmark rate, European Central Bank keeps rates low, US jobless claims remain above pre-pandemic levels
The Bank of England (BoE), in addition to the FOMC meeting raised its benchmark rate from 0.1% to 0.25%. This was the first time that other central banks have done it, and the European Central Bank did the same as the Federal Reserve but kept its benchmark rate low for now.
The European Central Bank stated that it would not increase borrowing rates until inflation is under control. The U.S. Weekly Jobless Claims , published last week by the Labor Department, indicate an increase in the previous week. According to the Labor Department, jobless claims remain well above levels pre-pandemic.