By
Bhushan Akolkar
April 17th, 2024
The Federal Reserve has hinted that it will soon start tapering its bond purchase program. However, for now, it has kept the interest rates at zero.
On Wednesday, September 22, the Dow Jones Industrial Average (INDEXDJX: .DJI) registered solid gains after 4 days of downside. The Dow Jones shot up by 338 points giving a closing at 34,258 levels.
Similar to the Dow Jones, the S&P 500 (INDEXSP: .INX) also gained nearly 1% ending Wednesday’s trading session at 4,395 levels. The tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) also gained 1% ending the trading at 14,896 levels.
The stock market rallied on Wednesday after Fed Chairman Jerome Powell said that the central bank has met its expectations on the inflation mandate and the employment mandate. during the press conference, Powell said:
“For inflation, we appear to have achieved more than significant progress, substantial further progress. That part of the test is achieved in my view and the view of many others. My own view is the test for substantial further progress on employment is all but met. For me it wouldn’t take a knockout, great, super strong employment report. It would take a reasonably good employment report for me to feel like that test is met.”
Another fuel to Wednesday’s rally was the Fed announcing no hikes in interest rates. The US central bank remains unsure as to when the first rate-hike should come. The Federal Open Market Committee (FOMC) has voted to keep the interest rates near zero. Nine of the 18 FOMC members are expecting a rate increase in 2022.
Fed Will Kickstart Its Bond Purchase in 2022
since the beginning of the Covid crisis, the US Central Bank has been purchasing $120 billion worth of Treasurys and mortgage-backed securities every month. On Wednesday, the Fed updated that it will soon curtail its bond purchase program.
“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” said the Fed.
Peter Boockvar, chief investment officer at Bleakley Advisory Group believes that the bond-tapering announcement can come by November. Speaking of tapering its bond-purchase program, the Fed Chairman said:
“While no decisions were made, participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate”.
“The market is already pricing in tapering now and have promptly turned their attention to the date of eventual rate lift-off and the pace of rate hikes which, if anything, is a little more modest than markets had feared,” said, Seema Shah, chief strategist at Principal Global Investors, commenting on the recent market developments.