The Federal Reserve Bank (FED) overnight unveiled much anticipated tapering to start in November with plans to end in 2022 but the remained patient with hike in interest rate.
FED chair Jerome Powell in a statement said the agency will reduce its monthly treasury purchases by $10 billion, mortgage-backed securities by $5 billion. The Fed expects to wrap up tapering by mid of the following year however could speed up or slow down the process depending upon the economic condition. In a unanimous decision, the officials decided to maintain benchmark policy rate at zero to 0.25%.
The FOMC statement made it quite clear several indicators in the labor market remains weak and rates are to be held near zero until the economy achieves full employment point. The market expects two rates hikes by second half of next year.
Currently, the Fed is buying $80 billion of treasuries monthly and $40 billion of MBS to stimulate the economy out of the pandemic lead downturn.
The Fed chair however tweaked the language of inflation to reflect more uncertainty on how long it will last.
In a statement the officials said, “Inflation is elevated, largely reflecting factors that are expected to be transitory,”.
The Fed chair acknowledged bottlenecked supply chain is pumping up inflationary however still believes the inflation is “transitory” and keeps longer term inflation goal at 2%.
Treasury yield curve remained steeper compared to before the FED decision. The 10-year US treasury yield was flat at 1.605%.
The MSCI world index is up by 0.12% with the S&P 500, Nasdaq and Dow Jones closed inching up by 0.65%,1.04% and 0.29% respectively which reflects the bears are trapped.
Asian markets ticked upward on optimism with CSI300 up by 0.94%, Hang Seng up by 0.44%, KOSPI up by 0.63%, Nikkei up by 0.78% and the SET ticked down at open by 0.03%, as of Thailand time 10.05 hours.