Fed Meet Preview: taper and rate hike, that's the only buzz among traders as the markets await the Federal Reserve to wrap out the last meeting of the year with a clear roadmap for 2022.
1. US is facing severely high inflation, retail prices are at a 40 year high, prices paid to producers are at a record high.
2. Too much money is the basic problem fuelling inflation, which means Fed may have to 'taper' the money supply.
3. To cushion the hit from the pandemic the Fed had been buying $120 billion of bonds per month since March.
4. The purchasing of bonds (which is how they inject money into the banking system) has started to taper by $15 billion a month
5. So, the 'easy money' from the central bank may completely be shut out by June 2022
6. Given the sudden spikes in inflation, markets are worried that the Fed will pick up the pace and plug the money tap sooner.
7. An early policy shift by central banks eager to tame inflation is the biggest downside risk for equities in 2022, according to an informal survey of fund managers conducted by Bloomberg.
8. The US Central bank has pumped $4.4 trillion ($4,400,000,000,000) into the economy since March 2020.
9. This has led to record low rates boosting stocks especially tech. The tech index Nasdaq has doubled from the lows of March 2020
10. Traders back home in India are afraid of a repeat of the taper tantrum of 2013 where there was a global meltdown leading to the rupee falling 15% between May and August and the RBI being forced to raise rates unexpectedly.
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