Fed Recap: Taper time

As we had discussed in our FOMC preview, Jerome Powell and the Federal Open Market Committee have decided that it is time begin tapering their extraordinary money stimulus bond buying of $120 billion bonds per month. They will do so at a pace of $15 billion per month, beginning in November (some had thought December). The $15 billion of bonds tapered will consist of $10 billion of Treasuries and $5 billion of MBS, which will end in June. Of course, they can always adjust the pace of tapering as warranted.

Everything you need to know about the Federal Reserve

The committee members also took into consideration the use of the word “transitory”. Rather than maintaining that “inflation is elevated, largely reflecting transitory factors”, the wording has been changed to, “factors are expected to be transitory”. This is to say that their expectations may be wrong (ie, inflation may hang around longer than expected) and they can increase the tapering if necessary.

What is tapering?

Needless to say, Fed officials also kept rates unchanged near 0% and said that risks still remain.

There is no mention of any timing in the increase of interest rates.

In the press conference, Powell spent a good deal of time discussing that the focus of today’s meeting was on tapering bond purchases and NOT on raising interest rates. Powell stated that the economy is not at maximum employment and therefore, there was no need to discuss whether conditions have been met for a lift off in interest rates. Once the economy reaches maximum employment, the Fed will look at the supply chain issues (which are causing high inflation). The Fed now has taken the view that supply chain issues and inflation will last well into next year.

Powell delivered a dovish taper. The press conference began with the US Dollar nearly unchanged from before the statement. As Powell spoke more about how there was no need to discuss a liftoff for rates, the US Dollar index began move lower. Sellers are trying to push US Dollar lower from the month-end buying that came in on October 29^th. Thus far, the DXY has retraced nearly 50% of its Friday move, nearing 93.80. The 61.8% Fibonacci retracement is just below at 93.68. Intraday resistance is at 94.21, then Friday’s highs at 94.30.

Source: Tradingview, Stone X

Trade EUR/USD now: Login or open a new account!

Just as the DXY sold off, EUR/USD went bid. The pair thus far has halted at the 50% retracement from the move lower on Friday near 1.1613. The 61.8% Fibonacci retracement from the same timeframe is near 1.1632. Intraday support below is at 1.1562, then the lows from Friday near 1.1562.

Source: Tradingview, Stone X

What now? Markets were expecting a taper, and they got exactly what they were expecting. However, Powell may have been a little too dovish in trying to prevent a taper tantrum (which sent the Dow to an all-time new high). The key will be jobs data, which Powell said comes in many forms. First and foremost is initial claims data in the tomorrow (275,000 expected) and Non-Farm Payrolls on Friday (450,000 expected). If bonds catch a bid, there may be selling stocks to cover the short squeeze in bonds, which would cause the US Dollar to move higher!

Learn more about forex trading opportunities.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% 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. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.