FOMC TODAY #Risk #FED

Big day for world markets, which will be inscribed on Wikipedia, in the section on monetary policy. Yes, this is the key meeting of the Fed this year. On the agenda is the curtailment of the quantitative easing (QE) program, initiated in March 2020 as a response to the spread of the coronavirus. The process of winding down QE is called "tapering", and it is clearly overdue, given the colossal inflationary pressure on the economy, and in general from the point of view of normalizing monetary policy. In September, US inflation jumped to a 13-year high of 5.4%. The numbers are unacceptable and require action.

At the same time, the FRS stubbornly continues to insist on the temporary nature of the inflationary surge. Until recently, the regulator's management made money on its own policy, buying up stocks and ETF funds. This sparked a scandal, the resignations of the heads of the regional central banks Kaplan and Rosengren, and recently led to the introduction of a ban on active trading in certain shares for Fed employees. An unpleasant story, but back to the agenda.

This year, the Fed has shifted its priorities from inflation targeting to labor market recovery, so-called full employment. In this case, some success was achieved: if in September 2020 the unemployment rate was 7.8%, then this September it dropped to 4.8%. Unemployment is still significantly higher than the pre-crisis level of 3.5%. But the trend is generally positive and the labor market is expected to further improve.

Today, the Fed is likely to announce its success in economic and labor market recovery; and will announce a plan to phase out incentives. So, it is expected that the rate of purchase of government bonds will decrease by $ 10 billion per month, and mortgage securities - by $ 5 billion per month. The process will begin in mid-November and will end approximately in June next year. This is a high probability scenario for today.

On the movement of interest rates, the FOMC members do not yet have a consensus for 2022, but at least three rate hikes are expected by the end of 2023. However, the money market is already betting that the first rate hike will follow immediately after the QE rollback. ... Specifically, Goldman Sachs points to July 2022.

The tightening of the monetary policy of the main central bank of the planet will not remain without consequences for overheated financial assets, in particular, the cryptocurrency market. The reaction can be delayed or extended in time, but it will follow. The American stock market approached the Fed meeting in its best shape: closing at all-time highs in all three major indices. There is also ETH, which showed 6 weeks of non-stop growth (+ 50%). Bitcoin has taken a respectful 63k hiatus and is ready to surprise.