If there’s one thing unique to the financial markets, it’s the hours leading up to a Federal Reserve announcement. The Fed, led by Jerome Powell, is the central bank of the United States, and their job is to keep the economy stable by controlling interest rates and the money supply. Their announcements hold a lot of weight on the market as stocks rely on them for their future expectations and it helps them gauge the economy. Most of the time, the market has a sudden reaction to the news, whether it was negative or positive.
Yesterday, it was safe to say that the reaction was negative. They announced that they would start the tapering of their asset purchases, and for those who wonder what tapering means, it’s essentially the gradual slowing of the Fed’s asset purchasing. What exactly are they tapering? Ever since the Fed set interest rates to near-zero last year, they have been buying 120 billion dollars’ worth of securities to stimulate the economy, and now that the economy has recovered and the Fed inflation goal was met, they decided that now is the time. However, they made sure to stress that this isn’t a precursor to an interest rate hike, with the rates likely to change in 2022. Some members felt the COVID-19 uncertainty, and they also felt that the transitory effects of inflation would last longer than others expected. Either way, the market didn’t like the news, with each index down 1 percent with the tapering news. What do you think about the Fed announcement?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.