Event Update - US Fed to withdraw stimulus faster to bring down stubbornly high inflation - ICICI Direct

Key Highlights

• US Federal Reserve maintained its target range for federal funds rate at 0-0.25%
• The central bank decided to begin reducing monthly pace of its net asset purchases by $20 billion for treasury securities and $10 billion for mortgage backed securities each month
• The Fed said similar reductions in the pace of net asset purchases will likely be appropriate each month but is prepared to adjust the pace of purchases if warranted by changes in economic outlook
• The central bank signalled interest rate increase in 2022 at a pace faster than expected
• Out of 18 policymakers, 12 expect at least three rate hikes in 2022 while five expect at least two rate hikes next year
• The Fed expects its inflation to remain elevated above its 2% target for four consecutive years

Impact on Dollar Index

The Dollar Index may continue with its positive bias as the US Fed decided to double its pace of winding up of asset purchases. With this pace it will end asset purchases by March and pave the way for three quarter percentage point interest rate hike by end of 2022. Out of 18 policymakers, 12 expect at least three rate hikes in 2022 while five expect at least two rate hikes next year. Further, the bank raised its inflation forecast to 5.3% for 2021 compared to September projection of 4.2% and hiked its PCE inflation estimate for 2022 to 2.6% from 2.2%. Investors will remain vigilant ahead of major economic data from the US to evaluate the strength in economy. As long as the dollar index sustains above 94.50 it will open the doors for 97.70/98.40 levels.

For details, click on the link below: Link to the report

Source : Equity Bulls

Keywords

USFed StimulusWithdrawal Inflation