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25 Nov 2021
2.5 min read

Fed Minutes Show Mounting Inflation Concerns, Quicker Tapering

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Key Takeaways

  • Fed minutes from the last meeting show policymakers are worried inflation pressure may stay
  • Stocks on Wall Street gain ahead of Thanksgiving Day; technology stocks in the lead

Fed Minutes Show Interest Rates Could Rise in First Half 2022

Policymakers at the Federal Reserve discussed persistent inflation pressures and taking more action to lean against the US economy. That became clear after the US central bank released its minutes from the meeting held Nov. 2-3.

This said mounting inflation concerns threaten to derail the strong economic rebound if higher prices stay elevated. To tackle this, Fed officials expressed a desire to raise interest rates in the first half of 2022. Previously, central bankers in the US intended to hike rates in mid-2022 or even near the end of the year.

In addition, the Fed is also preparing to close a chapter on its extraordinary pandemic stimulus. This month, the bank should start tapering, or reducing, the monthly asset purchases by $15 billion. The tapering pace, Fed officials discussed, could be accelerated in order to cool down the overheating economy.

Higher Inflation Suggests Quicker Tapering, the Fed Says

“Participants generally saw the current elevated level of inflation as largely reflecting factors that were likely to be transitory,” the meeting minutes say. “But judged that inflation pressures could take longer to subside than they had previously assessed.”

“Some participants suggested that reducing the pace of net asset purchases by more than $15 billion each month could be warranted,” the minutes say. That way, “the Committee would be in a better position to make adjustments to the target range for the federal funds rate.”

To this end, the Fed predicts inflation should drop back to 2% next year. Further, it sees a price increase landing at 1.9% in 2023. Presently, the Fed’s preferred inflation measure, PCE price inflation, stands at 5%. For comparison, Fed’s inflation target on an annual basis is 2%.

Where Are Stocks Headed?

Despite increasing inflation worries, investors rushed to buy stocks. Technology companies, in particular, were among the hottest assets of the day. To this end, the tech-heavy Nasdaq Composite gained almost half a percent. Additionally, the S&P500 added about 0.2%, while the Dow Jones Industrial Average declined less than 0.1%.

This week, Wall Street equities have gyrated near the flatline as market participants assess recent developments and future growth outlook.

In signs of a healing US economy, last week’s jobless claims posted a surprising decline to 199,000 new filings for benefits. In other words, the number was the lowest point since 1969.

What’s the Latest News on Bitcoin?

The price of bitcoin, the largest coin in the cryptocurrency market, remains pinned near $57,000 per token. The level has served as a consolidation area for the orange coin in the past week. With this in mind, bitcoin bulls expect the next upside swing to reach a fresh record even before the end of the year.

Bitcoin peaked at an all-time high of $69,000 on Nov. 10. Since then, the token has depreciated about 17%.

What’s Happening in Forex Markets?

The US dollar continued to dominate the forex market on Wednesday. In more detail, the EUR/USD slipped further to a 16-month low. The USD/JPY and the USD/CHF, on the other hand, reached new highs.

Against this backdrop, many traders expect the dollar to pull back as they are looking for opportunities to enter the market.

What’s Next for Traders and Investors?

On Thursday, US stocks will take a break from trading as America celebrates Thanksgiving Day. Tomorrow, the regular session will be shortened to 1 pm.

Today’s Economic Calendar (EST times)

  • 08:30 am, EUR, ECB President Lagarde Speaks
  • 12:00 pm, GBP, BoE Gov Bailey Speaks
  • 07:30 pm, AUD, Retail Sales (MoM) (Oct)

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