Fed reacts: Progress is observed in September, infrastructure dynamics, China intervenes, Bitcoin rises
Fed does not commit to reducing
The Fed’s policy statement has been somewhat restrictive now that the economy has made headway towards the Fed’s goals and policymakers seem somewhat unaffected by the risks of the Delta option. As expected, the Fed has not made any changes to interest rates or the interest rate forecast. The statement did not express concerns about the Delta variant, but focused on improving economic activity and employment due to advances in vaccination and strong political support. It wasn’t all restrictive as inflation is still temporary for them. Before any significant progress is made, Fed observers need to hear from the Fed that progress has been made.
Although the Fed is making progress on the cut, the Fed still has a few months with inflation and labor data to decide whether to start removing support. Given the pricing pressures announced this earnings season and the ongoing difficulty employers in finding talent, the fulfillment of the mission seems a long way off. Uncertainty over the Fed’s baseline on the outlook should cement a cautious stance that could reduce the announcement in September at the earliest.
A Hawkish statement was followed by a mixed press conference. The Fed confirmed that it will maintain its accommodative stance until it has achieved its goals. Bottlenecks and hiring difficulties increase the possibility that inflation will last longer than expected. The Fed was reviewing considerations to adjust its bond purchase program.
US stocks rose after Fed Chairman Powell signaled that the reduction in asset purchases will not come until we see essentially impressive non-farm payroll reports and the Senate appears to have the votes to move the bipartisan infrastructure plan forward. For a decline in September, financial markets may need to create over 2 million jobs over the next few months. Interest rate hikes will not happen until the economy recovers 7-8 million jobs and inflation persists.
Powell would not provide a range for the definition of maximum employment but noted that the economy is still a few steps away from significant progress in employment. The longer the press conference lasted, the more reserved Powell sounded. Powell noted that the economic impact of the Delta variant is still difficult to gauge. He added that the Fed sees less economic impact from each virus wave. Powell reiterated that they are still a long way from considering rate hikes.
The Russell 2000 Index increased its gains after reports that the bipartisan group reached an agreement on key infrastructure spending issues. Republican Senator Portman is optimistic that the infrastructure bill is more than paid. If the procedural coordination goes well, the final debate will begin. It is high time we got this bill through, otherwise the Democrats will have to do everything themselves.
Wall Street wants a bipartisan infrastructure deal as it will likely come with a cap on tax increases. The overall market did not respond too much to the news as infrastructure spending is generally anticipated.
China tossed the stock market a bone after authorities met with investment banks to ease nervousness over sweeping regulatory action. China assures foreign investors that widespread raids are unlikely. Fears grew that unless this sell-off ended soon, Chinese stocks would remain in the bear market area.
It doesn’t matter if Amazon will accept Bitcoin this year or later, what matters is that the institutional world believes the rest of Corporate America is getting closer to accepting crypto. The bitcoin boom has slowly returned as Congress appears to be divided on the creation of a regulatory system.
Ethereum is slowly gaining the institutional trader as its blockchain continues to dominate the smart contracts space. Ethereum is winning the blockchain wars and its outperformance against Bitcoin could accelerate in the future.
Risk appetite persisted after the Fed, and that helped Bitcoin hold the $ 40,000 level.
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With more than 20 years of trading experience, Ed Moya is a senior market analyst at OANDA providing up-to-date intermarket analysis, coverage of geopolitical events, central bank policies and market reactions to company news. His particular expertise lies in a variety of asset classes, including forex, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokers, research teams, and news departments on Wall Street, including Global Forex Trading, FX Solutions, and Trading Advantage. Most recently, he worked at TradeTheNews.com, where he conducted market research on economic data and company news. Ed is a New York based and regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most prestigious global news outlets, including Reuters, Bloomberg and Associated Press, and he is regularly cited in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.