The Federal Reserve decided on November 3 to begin reducing the monthly pace of net asset purchases by $10 billion for Treasury securities and by $5 billion for agency mortgage-backed securities. The markets reacted calmly, with stock market indexes breaking records.
The Fed's decision appears to be in line with market expectations, and policymakers added that similar reductions in emergency pandemic support are likely to be appropriate each month, but they are prepared to adjust the pace of change in securities purchases if warranted by changes in the economic outlook. On prices, the Fed noted that inflation is elevated and that supply and demand imbalances associated with the pandemic and the reopening of the economy have contributed to significant price increases in some sectors. However, these pressures are expected to be transitory. Jerome Powell, Fed chairman, added that the U.S. central bank may be patient about rate hikes but will not hesitate to act if inflation remains high.
After the Fed's decision, the three major U.S. stock indexes soared to record highs. New economic data may have also contributed to this. They showed that private sector employment in the US grew more than expected in October. The Nasdaq rose 1.04 percent to 15812 points, the S&P rose 0.65 percent to 4661 and the Dow Jones Industrial Average advanced 0.29 percent to 36157 points.
In turn, today's key event may be the decision of the Bank of England. The BoEi may become one of the first major central banks to start raising interest rates since a pandemic hit the global economy in early 2020, as concerns about rising prices outweigh the risks of slowing global growth, an unprecedented energy crisis and a potential rise in UK unemployment. Investors had not expected an interest rate hike until December, but the OBR's latest forecasts may prompt policymakers to act sooner. The fiscal watchdog said inflation could average around 4 percent in 2022 and potentially reach 5 percent, which would be the highest in 13 years. Several policymakers, including Gov. Andrew Bailey, seemed increasingly concerned about the inflation situation and called for higher borrowing costs. Still, three officials are seen as decidedly dovish, leaving the balance of power in the hands of Ben Broadbent and Jon Cunliffe, who have not spoken publicly on interest rates recently.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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