Major US stock indexes rose slightly on the back of the publication of the minutes of the latest FOMC meetings of the Fed, which did not give more detailed information about when and at what pace the reduction of the quantitative easing program will begin. At the same time, the Fed’s approach was less rigid than previously thought by market analysts.
The last meeting of the Federal Open Market Committee (FOMC) of the Fed took place on June 15-16, at the end of the meeting, Chairman Jerome Powell announced the final decisions.
However, Wall Street is always awaiting the release of the official meeting minutes to make sure Powell’s words reflect what central bank officials have said when discussing US monetary policy.
Against the background of the publication of the FOMC minutes on Wednesday, the main US stock indices rose slightly: the S&P 500 by 0.34%, the Dow Jones by 0.3%, the Nasdaq Composite index changed insignificantly, the yield on government bonds decreased.
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In general, the minutes of the meetings showed that the stock market reaction to Powell’s statements in June was probably overstated.
Then the market fell after the announcement of the approach of the date of raising interest rates from 2024 to 2023 and raising the forecast for headline inflation by 1% to 3.4% this year. However, the minutes of the meetings showed that the Fed’s current approach is still far from tightening policy.
“The minutes of the FOMC meeting in mid-June by the Fed were not quite as hawkish as we expected,” wrote Paul Ashworth, chief US economist at Capital Economics. “In particular, there appears to be only limited support to start reducing monthly asset purchases in the near term.”
The protocol did not give economists more information on when and at what pace the Fed will begin to cut its quantitative easing program (purchases of Treasury bonds and mortgage-backed securities). Central bank officials have indeed just begun discussions and have yet to make decisions on the pace or number of cuts in bond purchases.
Fed officials have generally also expressed support for repo transactions with commercial banks to ensure smooth market transactions.
The Federal Reserve System intends to continue its current measures for the full recovery of the US economy after the pandemic. The impetus for the approaching the timing of the increase in interest rates from 2024 to 2023 were positive signals about the rapid growth of the economy and the recovery of the labor market. At the same time, the Fed officials, although they raised their forecast for inflation, confirming that it is growing faster than they expect, they are convinced that the current rise in inflation will be a temporary phenomenon.
According to the minutes, most members agreed that the economy had yet to reach the “further significant progress” benchmark set by the Fed for any significant policy change.
Economists warn that the market could see several more months of high inflation, but with the Fed’s current approach, Wall Street doesn’t seem to worry about rate hikes yet.