On Wednesday, the stock market started on a positive note as investors awaited Fed’s decision on its monetary policy as the stock market plunged in the beginning of the week. The press conference from Fed Chair Jerome Powell Wednesday afternoon laid the groundwork for a near-term announcement and start to tapering of the Fed’s crisis-era asset purchase program. This currently comprises purchases of $120 billion per month in agency mortgage-backed securities and U.S. Treasuries.
In its statement Wednesday afternoon, the Fed said that if economic progress continues “broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.” The language served as an update from the central bank’s statement from the last meeting in July, which had only mentioned the FOMC would “continue to assess progress in coming meetings.”
Major indices like Dow Jones, S&P500, Nasdaq were up by 0.56%, 0.51% and 0.27%, respectively, when the markets opened. Most of the indices couldn’t recover the heavy sell-off of the previous session. Earlier on Tuesday, Dow Jones capped at 50.63 points lower than today.
Evergrande was the prime focus today, with the stock market and the crypto market waiting for the real estate giant’s next month. Investors fear a slow down in global economic growth if China decelerates its property market if Evergrande defaults.
Some hope came later last night as Evergrande said it could cover some interest payments with the help of trade bonds from the mainland which is in the Chinese Yuan.
The Fed’s 2-day meeting is to prepare the market for the stimulus package withdrawal. Jerome Powell, the Chairman of the Federal Reserve, already indicated a tapering of the $120 bn bond-buying programs by 2021-end.
The market was focused on the Evergrande crisis today and gradually moved on to the FOMC meeting outcome.
All eyes are on the Fed’s policy statement at the moment, as investors try to gauge the short term impact of the interest rate on the US economy based on the Fed’s forecast. The initial reaction from the FOMC meeting shows the Feds batting for a 6-7% rate hike through 2024.
Investors are hoping to know about a basic framework of the tapering bonds at the end of the meeting.
Analysts think that mortgage bonds are likely to be reduced from their current $120 billion mark and hope that the Fed rate remained at 0.25%.
Meanwhile, PRC authorities are inclining to support Evergrande while paying $83 million interest on the bonds. If that happens, the stock market, the oil and the industrial metal industry, and the Chinese currency yuan will be upbeat.
This is the last Fed meeting in the next two months, as there will be no meeting in October. The next one takes place on 3rd November.
The Federal Open Market Committee (FOMC) is a 7-12 membered board that controls the Federal Reserve System. It consists of the president of the Federal Reserve Bank of New York; 4 other 11 reserve bank presidents who are part of the committee for one year on a rotation basis.
Every year the FOMC holds eight regulatory meetings where economic and financial conditions are analysed, and then an appropriate monetary policy is decided. It assesses long term goals that speak for sustainable economic growth and price stability.
As per recent updates from the meeting, the “dot plot” projections, from the map of which map of 18 FOMC members’ rate hike expectations, suggest that the central bank might go forward with its 25 basis point rate hikes forecast. The last FOMC meeting is due in December. So, this might be the decisive one as there are only two meetings left after this one.