Following Monday’s market turmoil over serious problems by Chinese developer Evergrande, which also affected the price of BTC, attention is focused on a two-day meeting of the US Federal Reserve. Conclusions will tell a lot in the coming weeks.
The conclusions of the two-day meeting should be summarized in Wednesday at 14:30 ET (20:30 CET) in a public speech, the chairman of the Fed Jerome Powell. His speech is expected to be reassuring, but given the quarterly forecasts for the US economy and interest rates, this may not be an easy task for him. However, from a market point of view, it is very important, because the S & P500 had the worst day since May on Monday and the crisis of China’s Evergrande can also have an impact on global markets.
In particular, Powell is expected to announce the planned gradual tightening of taps on purchases of government bonds and mortgage-backed securities. The Fed has spent $ 120 billion a month on them since the coronavirus pandemic. If the Fed were to announce now that it is gradually ending this spending, it would be a signal that a discussion will open about a possible increase in the interest rate, which has been close to zero since 2020. Such a scenario is expected sometime around 2023, but so far no specific data have been indicated.
“I think they will start a discussion about narrowing. However, I do not think that they will provide any details. I think they will only present a framework according to which they will be able to start taking concrete steps in November or December. ” Rick Rieder, investment director of the world’s largest management giant, BlackRock, who, by the way, recently admitted to be a BTC investor, indicated his expectations from Powell’s speech.
At the same time, Rieder does not think that a gradual slowdown in the purchase of government bonds would automatically mean a way to raise interest rates. “Powell is likely to make every effort to distinguish and separate the association of incremental tappering and rate hikes.”
In addition to these two closely watched topics, Powell is also expected to publish forecasts regarding inflation, which is a direct consequence of the current monetary policy of the US Fed. While Powell has repeatedly argued that rising inflation is only a temporary side effect, according to analysts, more and more Fed members believe that rising inflation will be a longer-term problem.