Major US indexes are still in a correction. Some of them dropped yesterday. Investors are preparing for a key rate increase and reacting positively to rising treasury bond yields. It looks like capital flows move from the equity market to the bond market. If so, the bubble that many experts have been talking about in recent months could burst. As a reminder, the US stock market showed quite a strong growth during the pandemic. The share prices of some high-tech companies have risen several times. Nevertheless, as early as November the Fed could announce the start of a tapering of its QE programme. It will be the first step towards a tightening of US monetary policy.
Jerome Powell has already made two speeches this week. The first time he said that inflation could remain at high levels for several more months before it starts to slow down. "As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors," Powell said. On Tuesday, however, he announced that the US economy was still far from achieving maximum employment, but nevertheless the Fed was preparing to start tapering its policy of quantitative easing. Thus, everything depends on the Fed and its future actions. As a reminder, tapering of the QE program will lead to less money flowing into the stock market, which could have a negative impact on its growth.
Another problem at the moment is the US national debt limit. Janet Yellen has stated several times that the US Congress should hurry up with this issue, otherwise the Treasury could run out of budget by mid-October and it would not be able to pay its obligations and to finance to government agencies. Jerome Powell has also raised the question several times. However, no action has yet been taken by Congress. A vote for Joe Biden's infrastructure bill is due this week. His initial $3.5 trillion proposal was cut to $1 trillion and this is not the limit. However, this information will not be announced until Thursday. Then both houses of Congress can begin to consider raising the national debt limit. Thus, US politicians have to pass a bill to raise the debt ceiling until October 18. The US is unlikely to face a technical default, because of the inability of Democrats and Republicans to agree or because of a lack of time.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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