Immediately after the announcement of the Fed meeting results, Jerome Powell held a press conference. Investors did not expect any changes in the parameters of monetary policy. Therefore, traders focused their attention on Powell's speech, which turned out to be very disappointing. At the Fed's last meeting, Powell said that perhaps in the near future, Fed officials would start to discuss the tapering of the QE program. Over the past 6 weeks, I have repeatedly drawn the attention of my readers to the fact that Powell never mentioned again in all his speeches (in particular in the US Congress) that the Fed was going to start discussing the curtailment of QE. Apparently, at the last meeting, Powell simply said too much. The US dollar immediately rose by 250 pips against the euro as traders saw prospects for an early tapering of QE. However, the Fed cannot currently reduce the bond purchase program as the labor market is still far from its pre-pandemic levels. Therefore, despite inflation, which has already reached 5.4%, the Fed is highly unlikely to taper the QE program at least until another 3-4 million unemployed Americans get a job. According to the most optimistic estimates, this will happen no earlier than in 7-8 months. Hence, it is too early to talk about the reduction of QE before the end of 2021.
Thus, Jerome Powell did not mention in his speech this topic on purpose as the Fed was well aware of how traders were anticipating its comments on QE. Notably, given the $30 trillion national debt, it is very beneficial for the US to keep the US dollar exchange rate as low as possible. The cheaper the US dollar, the easier it is to buy it for other currencies. The higher the inflation, the faster the US currency devalues. Currently, the Fed's printing press significantly weighs on the greenback. So, for the Fed, rising inflation is more a blessing in disguise If Powell again hinted about the possible end of QE, it would trigger a strong growth of the US currency. However, it would rather unfavorable for the regulator. Powell openly stated that the regulator was not going to raise the key rate in order to combat inflation. In other words, the Fed will not restrain inflation in any way at all. Therefore, it may continue to grow in the coming months as there are plenty of reasons for this, e.g. the ongoing QE program and high deferred demand of US consumers. Additionally, Powell's rhetoric on inflation has changed slightly. If earlier he stated that he expected inflation to slow down in the coming months, now he said that inflation may decrease in the medium term, but "it is very difficult to say when this will happen." It seems that the Fed will simply monitor inflation and wait for the labor market to recover. In order to calm investors, Powel said that the regulator would use all available tools at its disposal to keep inflation under control, if necessary. Powell did not specify what tools and when it would be necessary to contain inflation.
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