Federal Reserve Rate Decision, November 2020
- The Federal Reserve[1] announced a start to tapering asset purchases at the November rate decision today.
- This article will be updated throughout the rate decision and press conference with focus on the US Dollar[2], S&P 500[3] and Nasdaq[4] 100.
The long-awaited rate decision is here, and the FOMC[5] has just issued their statement to announce a start to tapering asset purchases to the tune of $15 billion per month. This puts the bank on schedule to finish tapering in H1, 2022.
As Chair Powell has said multiple times in the past, tapering and rate hikes are different matters altogether, but by finishing bond buys in the first half of 2022, the bank is on track to begin hiking rates later in the year.
The motivation to tighten policy is brought on by persistently strong inflation numbers, which haven’t turned out to be as transitory as the Fed would’ve liked after inflation spiked above 4% in April. CPI printed[6] at 5% for May and since then, there hasn’t been a print below 5.3% and last month saw inflation tick back up to 5.4%.
The Fed’s inflation target has long been 2% but last year the bank adjusted their strategy to instead focus on average inflation targeting, giving them more operating room considering the economic dynamics around the pandemic. But that additional operating room appears to have not helped matters regarding inflation and the question now is how quickly the bank may be looking to normalize rates should inflation not begin to pull back in the near-term.
US CPI Since September, 2020
Chart prepared by James Stanley[7]
