USD Turns Higher After the FED Taper Announcement for December
Earlier today I posted an article about market expectations regarding the FED tapering. Many analysts and traders were expecting the FED president Jerome Powell to announce the beginning of the taper process, after spending trillions of dollars on the massive stimulus programmes they have introduced during these uncertain times.
That’s exactly what took place, Powell announced the beginning of the taper. This is the beginning of the end regarding the excessive cash that has been flowing from all directions. markets have taken it lightly by the way, with the USD turning around 50 pips higher while US stock markets are not declining.
EUR/USD has turned bearish after the Powell’s announcement
Powell opening statement:
- A gradual taper that concludes around the middle of next year is likely to be appropriate
- Job gains have been very strong but in August they slowed down markedly, particularly in leisure and hospitality
- Virus fears weighing on employment growth but should diminish over time
- Inflation is elevated and will likely remain so for months before moderating
- Supply bottlenecks have been larger and longer-lasting than anticipated
- Supply bottlenecks will abate and inflation should fall back towards goals
- Indications of longer-term inflation expectations still consistent with longer-run goals
- No decisions were made on taper
- A gradual tapering process that concludes around the middle of next year is likely to be appropriate
The early comments are generally “on the one hand…. on the other hand.” Powell said long-term inflation expectations are still anchored, with the word ‘still’ indicating some new uncertainty. Whenever I see the word ‘still’ in a forecast, I see it as a red flag that doubts have crept in.
That’s the clearest guidance on tapering yet. It implies a $20 billion taper at each meeting starting around December. I’m surprised that he laid out a plan here but it strongly implies a taper starting this year and gives us the pace. Once the taper is done, rate hikes are on the table. Officials are trying to disconnect the two but with the dots moving forward and the taper done at this time next year, hikes are certainly in play.
S&P500 Daily Chart
S&P remains bullish today, despite the taper comments
- There’s very broad support for the taper timeline at the FOMC
- We’re going to be well away from satisfying the liftoff test when we being the taper
- There is a lot of room for improvement in the labor market
- Powell says he was not aware of Kaplan and Rosengren trading (he’s distancing himself from them)
- We’re going to gather all the facts and look at ways to further tighten our standards (on trading)
- There’s no timeline on when the Fed will conclude its review of ethical standards
- If the economy evolves in line with expectations, Fed can easily move ahead at the next meeting… or not
- For me, it wouldn’t take a knockout employment report to meet the standard. In my own thinking, the test is “all but met”. For many others, it’s already met.
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