Fed Taper Talks in Focus as Investors Await FOMC Minutes

Fed Taper Talks in Focus as Investors Await FOMC Minutes

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Key Takeaways

• Markets expect Fed minutes to give insight into how soon the US central bank could start tapering
• Stocks retreated on Tuesday, futures point to a slightly higher open on Wednesday

The US dollar dipped against other major currencies on Wednesday and gold advanced above $1,800 per ounce as market participants are zeroing in on the latest Federal Open Market Committee meeting minutes.

The last meeting between Federal Reserve officials in mid-June turned out to be a pivotal event for the financial markets. Fed policymakers opened the debate on scaling down their pandemic-induced bond-buying program that has supported the stock market and the economy for over a year.

The $120bn a month of bond purchases was the main topic of discussion at the June 15-16 policy meeting. Along with initiating talks of tapering, the Fed also offered their projection for the foreseeable future which included at least two interest rate hikes, the first of which could arrive by the end of 2023.

The Federal Reserve cited stable and strong economic growth and forecasted the recovery is expected to continue, underpinned by monetary and fiscal support, coupled with a successful vaccination campaign across the US.

Recent economic data has supported Fed’s projections. The latest non-farm payrolls, released Friday, confirmed labor market growth remains intact. The US added 850,000 new jobs last month, surpassing expectations and climbing above the prior month’s jobs number.

Anticipation for Fed Meeting Minutes

More clues on when and by how much the US central bank may begin to unwind its monetary support are likely to arrive today when the Federal Reserve publishes the minutes summary of the last meeting.

Wednesday’s readout could also highlight how the Federal Reserve sees the recent bouts of inflation. In his previous speeches, Fed Chair Jay Powell has reiterated the central bank expects higher inflation pressures to come down as soon as next year. The market, however, fears that the depth of inflation could prove to be longer-lasting. The Fed’s preferred measure of inflation, the core personal expenditures price index, has surged to 3.4% in May, eclipsing the Fed’s target of 2%. On that note, the market expected a more hawkish stance at the last meeting. Instead, Chair Powell decided to press ahead, leaving monetary policy unchanged. During his previous appearances, he has commented that the Fed would only start tapering when the US reaches a maximum level of employment and stable prices.

The market is now trying to adjust to any possible scenario the Fed minutes could reveal. The US dollar is holding somewhat pressure against the euro and the Swiss franc, while gold climbed back above the $1,800 threshold and is currently floating around $1,805.

US stocks ended Tuesday mixed as investors retreated their risky bets and caused the S&P500 to snap a seven-day winning stretch. Still, the Nasdaq Composite eked out a few points to the upside, resulting in a fresh all-time high. The yield on the 10-year US Treasury note fell to 1.369%, from 1.434% on Friday. Stocks

and bonds took a break from trading on Monday due to the Independence Day holiday. US equity futures are pointing higher in pre-market trading before the opening bell in New York.