🎙The Fed has Spoken🔭

The minutes of the FOMC meeting on Nov 2-3 showed Fed officials’ heightened discomfort with the persistent nature of the inflation. It comes at a time when the Fed begins tapering its bond purchase. The move is in a critical junction as President Biden is also looking to fill in vacant seats at the Fed.

The views shared by the officials is that the prices increase due to the reopening pressure primarily and could be temporary. Nonetheless, there is apparent uncertainty by the Fed officials on the degree to which the inflation is transitory and might take longer to subside.

⌛️Supply Chains Pressure🛢

Without a doubt, the Covid-19 Delta variant had made supply chains fragile and supported a high demand level for goods, further pushing up prices. This can be seen in energy prices as well as nominal wage growth. In addition, higher housing rental costs have been a formidable pressure on inflation as it becomes more pronounced in several parts of the economy.

Therefore, there is a consensus to reduce the bond purchase by around $15 billion per month so that the Fed can adjust the federal fund rates depending on the economy’s trajectory. Uncle Powell has been a storyteller in convincing the market that an interest rate hike is not on the card for the near time. Despite this, minutes did show some members looking forward to a faster rate hike.

⚖️Next FOMC Meeting, Dec 14-15💰

The December meeting will be critical, especially after the November jobs report and CPI data. Suppose we continue to see the rise in wages due to a poor labour force participation rate and elevated consumer prices; market participants are likely to price in a rate hike in June 2022 or earlier, given that tapering would have to begin faster.

Moreover, a remarkable payroll report and inflation will push the case for an acceleration of tapering. And if that comes, Pika World will be updated on our latest outlook.

It is 26 Nov, Friday, at 7.40 am in Singapore and 7.40 pm in New York. We have come to the last trading day of the week. Markets will be trading till 2 am in Singapore time. Pika World wishes everyone an enchanting weekend!