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Economic Indicators

23 Sept 2021

Fed Tapering; Investors Look Ahead to Rate Hikes

The Index Today

The Fed Reserve signaled in the last meeting it would begin unwinding its money policies and reduce its monthly bond purchases. Investors are worried the tapering of the bond-buying program may be closer than expected.
Many describe this move as a hawkish tilt as the Fed may even consider November to begin tapering. U.S central bank policymakers have projected the rise of borrowing costs in 2022. Fed Chairman Jerome Powell stated that the central bank may consider tapering process to start sometime next year as long as economic recovery remains on track.
This move has led to investors worrying over possible rate increases and tightening of monetary policies. It is uncertain how the market will respond to the $120 billion per month bond-buying program being reduced drastically.
Analysts at BoFA Global Research said in a note, “The rates market interpreted Fed communications as hawkish. The more hawkish Fed is a key ingredient for our higher rates view into year-end.”
Analysts expect the bank to minimize asset purchases by $15 billion a month, resulting in strengthening of the dollar and higher yields. Investors are concerned with the U.S currency trajectory as it will directly impact commodity prices and even business earnings. Senior market analyst, Joe Manibo said, “Once the dust settles it seems that there are enough hawkish signals to keep the dollar biased higher, as the market pencils in a sooner-than-expected rate hike.”

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