- Federal Reserve leaves rates unchanged at 0-0.25%.
- The Federal Reserve will begin the bond tapering process in mid-November.
- The pace of the bond taper: $70 billion a month of treasuries, and $35 billion a month Mortgage-Backed Securities(MBS).
Gold (XAU/USD) extends its sharply fall, seesawing around $1,765 as the Federal Reserve announced the bond tapering, it will start by mid-November, and the pace of the QE program will reduce from $120 billion a month to $105 billion, a $15 billion reduction as the market expected. Furthermore, it leaves the doors open for a faster bond tapering process, as the Fed says that “comparable decreases in buying pace are likely reasonable each month, but we are willing to adapt if necessary.”
Market Reaction
XAU/USD is seesawing around the $1,760-$1,770 area, but its initial reaction spiked towards $1,770, retracing the move towards $1,766.
Summary of the Federal Reserve monetary policy statement
Summarizing comments of the Federal Reserve’s statement, they said that “elevated inflation is largely transitory, and supply and demand imbalances related to pandemic have contributed to sizable prices increases in some sectors.”
Furthermore, they added, “[the fed] will begin taper later this month with reductions in treasuries purchases by $10 bln, MBS by $5 bln.”
However, they leave the door open for adjustments at the QE’s pace. They said “similar reductions in pace of purchases likely appropriate each month, but prepared to adjust if warranted.”
Concerning economic conditions, they see an improvement in economic activity while the labor market continues to strengthen.
Regarding COVID-19, they said, “Summer’s rise in COVID-19 cases slowed the recovery of sectors adversely affected by the pandemic.” They reiterated that the
To finalize, they reiterated that the economy’s path would lie on the course of the COVID-19 pandemic.
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