Economic Progress is Acknowledged

The Fed had spoken, there were almost no changes to the Fed’s policy, and the ultra-accommodative policy is set to remain. However, as a forward-looking market, investors are eyeing the Jackson Hole meeting in August as a possible venue when tapering talk might be on the table.

While Uncle Powell recognises the economic progress, but there seems to be more work to be done, especially on the uneven improvement seen in the labour market for the lower-income population. Furthermore, the onset of the Delta variant might have prompted the Fed to take a more cautious stance than lifting their legs off the stimulus pedal.

The Ironic Situation

While economic growth is likely to have peaked, inflation remains warm, keeping central bankers to tread carefully as they have a challenging time convincing investors on the transitory inflation story.

So with the economy on a firmer footing, the Fed remains unmoved. Consistent with expectation, It seems that Uncle Powell is ready to stay pat and has convinced other members in the Fed that patience on changing policy is the wiser move.

There’s one action that the Fed took, which is to set up the Standing Repo Facilities for banks which they can exchange bonds for receiving cash. The move will benefit the financial sector to ensure liquity flow and ensure lending facility health should the economy take a downturn. This is especially crucial given that banks might have held a considerable volume of Treasuries and other bonds in their balance sheet in their navigation during the pandemic.

In his conference talk and questions taking, Uncle Powell went all out to add clarity as he stated that “we won’t have an extended period of high inflation”, a clear signal that the Fed’s team is determined to water down any uprising debate on the persistent of inflation.

The Stock Market Took it Easy

Equity markets were muted mainly and ended mixed with the Technology sector and Russell 2000 on the upside. However, the Fed’s movements were largely anticipated and highly predictable. Markets participants took the nod to $120 billion in bonds as a floor for equity to remain on the high end, given that Uncle Powell’s speech had helped to dial back the hawkish sentiment in the run-up to the FOMC meeting.

We will bring you more updates on the critical earnings as we progress into an adrenaline rush earnings season.

It is 29 July, 8.05 am in Singapore and 8.05 pm in New York. It has been a profitable week thus far, and Pika World wishes you a productive day ahead!

Cheers, Pika Nat.