To taper or not to taper? That is the question for markets ahead of the Federal Reserve's all-important June meeting. The world's most powerful central bank buys $120 billion worth of bonds every month and investors are coalescing around a path to reducing these purchases as America's economic situation improves. The short answer is no. Rejecting a change in policy will likely push the dollar down – but forex is never a one-way street and the bank's decision is comprised of several parts that may cause jitters.
To taper or not to taper?
Markets waiting expectantly for a change in Federal Reserve policy as inflation courses through the US economy and growth soars will be disappointed after its two-day meeting, but the governors are likely to signal that tapering their bond purchases has become an active discussion. The Federal Reserve Open Market Committee (FOMC) statement could offer a more positive view of the US economy as a prelude to policy shift, but the gradations of optimism will probably be left to Chair Jerome Powell in his press conference appearance...
FED'S LAST EMERGENCY MEASURES REVIEW
Chicago Federal Reserve Bank President Charles Evans reiterated on Tuesday that he is fully supporting the Fed's accommodative policy and argued that the recent rise in inflation is welcome, as reported by Reuters.
"Lower-wage employee base has increased aspirations for what they need to go back to work," Richmond Federal Reserve Bank President Thomas Barkin said on Monday, as reported by Reuters.
Federal Reserve Bank of Kansas City President Esther George said that it is hard to distinguish between one-off 'bottlenecks' and broad lack of capacity. ''Do not dismiss risk of higher inflation.'' ''Fed should not be 'rigid' in approach to policy, or lose sight of possible changes to the economy as it reopens.''
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April Fed decision review
The April FOMC meeting statement and opening remarks from Powell's press conference struck a slightly more optimistic tone but did nothing to dissuade expectations that the current stance of policy will remain unchanged for months to come. While acknowledging a clear pickup in activity since its March meeting and inflation closer to its 2% goal, the FOMC left its forward guidance around the fed funds rate and asset purchases unchanged.
New highs for EUR/USD – seeing the currency pair hold trade above 1.2120 is everything technical traders need to understand that the Federal Reserve is dovish. Is the pair overbought or will it continue higher? Here, understand Chair Jerome Powell's comments provides reasons to continue seeing the dollar fall and EUR/USD to rise.
March Fed decision review
As widely expected, the Federal Open Market Committee (FOMC) refrained from making any major policy changes at its meeting today. But, the Committee upgraded its assessment of the current state of the economy. Specifically, the FOMC now looks for stronger GDP growth, higher inflation and lower unemployment in 2021 than it did three months ago.
Hold your horses – or at least just a bit. Only seven out of 17 Federal Open Markets Committee members foresee a rate hike in 2023 and only four in 2022. That is a dovish outcome in comparison to market pricing of the first increase in borrowing costs coming in 2022.
January Fed decision review
As expected, the FOMC made no major policy changes at today's meeting. That said, the committee did note that the recovery has moderated in recent months and stressed that the outlook remains critically dependent on the course of the virus. In our view, the FOMC is more likely to provide “too much” accommodation in coming months rather than “too little.”
Trying not to rock the boat – that is often the role of central banks – but the seas are storming. The financial world is fascinated with wild moves in stocks as Gamestop (NASDAQ: GME) and epic battles between retail traders and hedge funds.