Before the FED meetings today 14.01.2021

Thursday, January 14, 2021 - 15:13
Point Trader Group
Before the FED meetings today 14.01.2021

With long-term interest rates rising in the US and more bubbles emerging in the stock market, market participants will have a keen interest in Fed Chairman Jerome Powell's comments today at Princeton University.

Why it matters: The uncertainty wrought by the coronavirus pandemic, volatility in financial markets, and divergent opinions about the future of monetary policy from federal policymakers are making investors hungry for guidance.

What's happening: Minutes from the last policy-setting meeting of the Federal Reserve and comments from various members of the FOMC in recent days indicated that the central bank could begin to scale back its massive quantitative easing program - which provided significant confidence to stock and bond investors - during the end of the year while Comments from other committee members indicated that the central bank would buy bonds for a longer period.

"I will probably see it happen at the end of 2021 or early 2022," said Patrick Harker in Philadelphia of the bond purchases cut in a speech last week.

Atlanta Rafael Bostitch told reporters on Monday that he is "open" to bond purchases later this year.

"I hope this year," said Federal Reserve Chairman Robert Kaplan in Dallas.

On the flip side: In an effort to curb all the downsizing talk, two Feds, seen as the closest to Powell, have made it clear that we will be staying here for a while.

   Fed Vice Chairman Richard Clarida said on Wednesday, "We're not going to go until inflation is at 2% for a year ... we're trying to tie our hands."

   Lyle Brainard said on Wednesday that the US economy is still "far" from the Fed's targets and as a result, the bond-buying program is likely to continue "for some time".

In the numbers: The Fed currently buys $ 120 billion in US Treasury bonds and mortgage-backed securities every month in part to keep US government debt yields low.

   However, the 10-year Treasury yield has increased by about 25 basis points since the start of the year, reaching 1.18% earlier this week as investors brace for higher inflation.

   The 10-year breakeven inflation rate rose to 2.11% last week and stabilized at 2.06% on Thursday.

The Federal Reserve's latest report on business conditions across the country found that a third of the U.S. central bank's 12 regions recorded steady or declining activity in November and December while the majority of provinces said activity increased only modestly.

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