FOMC Announces Taper in November Rate Decision

Federal Reserve Rate Decision, November 2020

Federal Reserve announced today the start of the purchase of assets reducing to the November rate decision.

This article will be updated during the rate decision and press conference with a focus on the US dollar, the S&P 500, and the Nasdaq 100.

long-awaited rate decision has arrived and the FOMC has just released its statement announcing the start of phasing out $ 15 billion a month asset purchases. This puts the bank in time to finish downsizing in the first half of 2022.

As President Powell has said several times in the past, rate cuts and rate hikes are completely different topics, but with bond purchases ending in the first half of 2022, the bank is on track to start raising rates. throughout the year “. .

rationale for tightening policy is driven by persistently strong inflation figures, which did not turn out to be transitory as the Fed would have liked after inflation rose above 4% in April. CPI printed at 5% for May and since then, there has not been a print below 5.3% and last month inflation rose again to 5.4%.

Fed’s inflation target has long been 2%, but last year the bank adjusted its strategy to focus instead on the average inflation target, giving them more room to operate taking into account economic dynamics around the pandemic. But that extra operating room doesn’t appear to have helped inflation woes, and the question now is how quickly the bank could try to normalize rates if inflation doesn’t start to decline anytime soon.

CPI USA as of September 2020

Picture made by James Stanley

USD initial reaction

2:02 pm ET

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initial reaction in USD was a quick bearish hit, suggesting that this was already pretty much factored into the equation. press is where things can get interesting for the USD, as the focus will turn to Powell’s comments and whether he suggests more than a rate hike for 2022.

One minute chart of the US dollar

SPX initial bullish reaction

2:12 pm ET

Along with that weakness in the USD was a rapid burst of equity strength with the S&P 500 briefly hitting another new all-time high. move has slowed slightly since then, but remains markedly positive since before the release was published.

SPX 15-minute price chart

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USD Return to pre-launch levels

2:23 pm ET

Powell hasn’t even come close to the conference yet and the USD has already returned to pre-launch levels. DXY was 94.05 ahead of the offer and is currently trading above the 94 threshold with just over 5 minutes on the presser foot.

One minute chart in USD

SPX returns to highs before Presser

2:29 pm ET

Presser is about to start, but the stock has returned to the ATH which was set just after the release of the statement and above yesterday’s previous ATH of 4627.

One minute SPX chart

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Yen weakness

2:34 pm ET

One of the main results of the first 30 minutes of this interest rate decision: the weakness of the yen. yen is very rate sensitive and the USD / JPY is rising from a key support area around the 113.80 level.

USDJPY four-hour price chart

Rates

2:39 pm ET

WSJ’s Nick Timiraos answered the first question from the press, explicitly asking if the Fed was considering a hike or two for next year.

Powell successfully avoided it. He said the “supply shortage” will continue into next year and inflation is expected to begin to decline in the second or third quarter.

Powell just said that he believes the Fed should be patient and that policy will adapt appropriately.

Russell 2000 flying higher

re is a general sense of strength in stocks so far with the S&P 500 near that ATH. But the Russell 2000 is flying absolutely higher, and he particularly appreciated Powell’s latest answer in which he successfully avoided the rate hike question.

Fed seems complacent, now small-cap, with the new ATHs.

Russell 2000 Chart 5 minutes

Stocks now fly

2:50 pm ET

Twenty minutes had passed in the press and stocks found a statement that they really liked when Powell answered a question and said “we don’t want to surprise the markets.”

S&P to a new all-time high and the Russell 2000 is now up 1.2% since the release of the release.

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Russell 2000 One Minute Chart

take-off test

2:59 pm ET

Powell asked about fares again and stepped aside, but said “Launch test” was still not satisfied and therefore seeking maximum occupancy.

Stocks are happy, the Fed is adjusting even with today’s phase-down announcement. S&P 500 is currently up 0.62% since the release of the statement.

One hour SPX chart

Powell focuses on climate change

3:03 pm ET

We’re on the climate change part of the questions and answers and Powell just raised the issue, pointing to elected officials to address the issue instead.

“We are not the people who will decide the climate change strategy.”

drop in USD points for the cararate FOMC

As another point of recognition for today’s cararate outlay, the US dollar has been in net loss since the release of the statement.

DXY is bouncing off a Fibonacci level around 93.83, currently down about 0.13% from 2pm ET.

One hour price chart in US dollars

next update …

DailyFX Resources for the November FOMC:

Live data hedging: November Federal Reserve meeting, rate decision

Markets Around the November Fed Meeting: Macro Setup

S&P 500, Dow Jones and Nasdaq 100 Forecasts: Delineating an Opportunity

USD / JPY is trading in bullish flag formation ahead of FOMC rate decision

– Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow Jaime at: @JStanleyFX

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