The US Federal Reserve has announced plans to scale back its bond purchases, taking the first step toward ending a post-coronavirus money-printing program that has inspired many investors to buy bitcoin as a hedge against inflation.
Today's FOMC meeting was busy. Among the subjects discussed, 2 came under the spotlight: interest rates and Fed stimulus.
What was defined today?
After announcing the beginning of the reduction in bond purchases, Federal Reserve Chairman Jerome Powell said today (3rd) that authorities should be patient to raise interest rates, but that they are keeping an eye on the market.
Briefly, it was stated that the Fed will cut its stimulus by $15 billion a month starting in November.
Currently, the Fed is pumping $120 billion into the economy monthly, with $80 in purchases of US Treasury bonds (which will drop to $70 billion a month) and $40 billion in purchases of government-backed mortgage bonds. (which will drop to $35 billion per month).
Under the plan, the Fed will continue to reduce its purchases by $15 billion each month until the program is completed in the middle of next year.
Basic Interest Rate (USA)
Regarding the expectation around the increase in interest rates, Powell stated that:
“We think we can be patient. If an answer is necessary, we will not hesitate”, giving signs that the basic interest rate will not rise in the very short term, which encouraged the markets.
This mood is due to the fact that with the increase in interest rates, fixed income becomes more attractive, which, as a consequence, tends to harm variable income assets.
With interest rate hikes being postponed, the S&P 500 rises today (as of this writing) +0.65%.
"The committee believes that similar reductions in the pace of liquid asset purchases are likely to be appropriate each month, but is prepared to adjust the pace of purchases if justified by changes in economic prospects," the Fed's monetary policy committee, known as the O Federal Open Market Committee, or FOMC, said in the statement.
Asset purchases – a form of newly created cash-financed stimulus known as “Quantitative Easing” or QE (“Quantitative Easing”) has helped to more than double the size of the Fed's balance sheet since March 2020, to about $8.6 trillion last week.
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Fed content announces it is expected to begin cutting asset purchases by $15 billion as of November first appeared in Cointimes .