Fed Quick Analysis: Any tantrum would be transitory, Powell powers stocks

  • The Federal Reserve has left its policy unchanged and acknowledged a strengthening economy. 
  • While also recognizing rising inflation, the Fed dismisses it as transitory. 
  • An eventual tapering of bond-buying will come, but that would taker longer. 

Not even thinking about thinking of tapering bond-buying – that seems to be the message from the Federal Reserve in its April meeting. Markets like it and could continue higher. 

The Fed acknowledges a strengthening economy amid vaccines and policy support. It has also removed the word "considerable" attached to downside risks. If that is the bank's most hawkish move, it is a newborn baby hawk born in captivity rather than a wild bird of prey. 

More importantly, Federal Reserve Jerome Powell and his colleagues have reinstated the word "transitory" to their statement when talking about inflation. While official Consumer Price Index figures are barely at late 2020 levels, rising prices of commodities, the global chip shortage, and anecdotal price rises are pointing to show inflation is coming. The Fed is not buying it, not now. 

Overall, the world's most powerful central bank remains patient and does not worry about any overheating. For stocks, that means a green light for more gains. 

For the dollar, it means additional months of $120 billion/month in bond-buying before any reduction – further devaluation of the greenback. When that tapering of purchases eventually comes, it could boost the dollar and send shares tumbling. However, Powell provides additional punchbowls and keeps the party going. 

Any tantrum related to the subtlest of acknowledgments of an improving economy is, therefore, transitory like the Fed sees inflation. Potentially, that would be another buy-the-dip opportunity. 

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