Markets seem to have quickly recovered in the second half of Thursday after the stress caused by surprising revelations in the minutes released from the latest meeting of the Federal Open Market Committee (FOMC). on Wednesday. The statements by the Federal Reserve (Fed) after the meeting on May 19 were solid it their position that ultra-soft monetary policy would remain in place until 2023 at least. But, FOMC minutes presented a slightly different picture as some of its members stated the opinion that the Fed should begin to reconsider the tapering of bond purchasing at some point.
Markets were shaken just after the minutes came out as it was the first time since the beginning of the pandemic that Fed members even mentioned the idea of tapering stimulus measures. Such a move could bring a drastic change to the market’s landscape. Most of the risky assets like crude, stocks, most of the currencies - excluding the U.S. Dollar - were gaining in price for the past year thanks to the money printer run by the Fed.
However, this possibility of tightening monetary policy from the Fed should not be considered to be set in stone in the next few months. Such opinions are not seen to be shared by the majority of the FOMC, and the Fed’s Chair Jerome Powell didn’t even pay attention to this minority position. Rising inflation is treated by the Fed as a temporary issue as it is expected to reach more normal levels as the economy recovers. Weak U.S. employment data and retail sales in April just confirmed its quiescent position. Even those Fed members who voiced their concern are suggesting that any monetary tightening is a distant perspective.
Inflation is no longer an ultimate issue on the Fed’s agenda and the Treasury as they pump money into the economy at an unprecedented pace. Moreover, this policy has a huge advantage for the U.S. budget as yields on ten-year Treasuries are below 1.7% and annual inflation is at 4.2% - this means that the real interest rate is at -2.5%. So, it is not the Treasury that pays the interest but investors who are paying it in order for bonds to be bought. In such circumstances debt is considered to be a minor problem.
Markets were seen to calm down on Thursday as they digested the content of the minutes. So, no continuation of the decline was developed. The Greenback has resumed its downward trend as the U.S. Dollar index returned to 89.8 points. A downward pressure may drag the index to 89.6 points, and even further down to 89.2 points.
So, an immediate affect from this Fed’s members minority report may not be expected. However, it may be interpreted as a warning sign that the Fed may quickly change its attitude if the U.S. and global economy continue to pick up rapidly and the CPI in the U.S. jumps close to 4.5%.
Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.
We are ready to assist you in every step of your trading experience
by providing 24/5 multilingual customer support.
Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.19% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.
© 2011-2023 Teletrade-DJ International Consulting Ltd
This website is operated by Teletrade-DJ International Consulting Ltd, which is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11. Teletrade-DJ International Consulting Ltd is located at 88, Arch. Makarios Avenue, 2nd floor, Nicosia Cyprus.
The company operates in accordance with the Markets in Financial Instruments Directive (MiFID).
The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Teletrade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.
TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.
Teletrade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.
Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.19% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.