FOMC meeting provides multiple indications

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For the last time this year the US Federal Reserve (Fed) and its key committee – the Federal Open Market Committee (FOMC) – had their usual a two-day meeting, which took place on 14 and 15 December 2021. Although the meeting did not produce any immediate decisions, according to economic correspondents, Fed Chairman Jerome Powell provided multiple indications of future decisions and actions of US central bankers in 2022 at a press conference.

These forthcoming FOMC decisions for 2022, as revealed at the Fed’s press conference, are to include an acceleration of the reduction of its monthly bond purchases. FOMC also intends to raise interest rates three times over the course of next year. The US Federal Reserve System’s rate hike in the summer of 2021 was originally scheduled for late 2023 and according to economic correspondents it means that central bankers are fully aware of the seriousness of the economic situation in relation to soaring inflation and the slowdown in gross domestic product growth. However, the question is, whether these measures will be sufficient to avert the ongoing economic crisis, not only in the United States but also on a global scale.

Based on these facts, the reaction of investors was not far behind, especially within the foreign exchange – Forex market regarding the exchange value of the US dollar (USD). On 16 December 2021, at 7:24 am CET, according to the US Dollar Currency Index (DXY), which compares the USD with the other six major world currencies, we saw the USD at a price level of 96.42 with a daily weakening of -0.09%. The global currency pair of the single European currency, the euro (EUR) and the USD, traded on the Forex market at US$ 1.1285 per EUR. At the end of the trading day on 15 December, after the FOMC provided those indications, the US stock market reacted highly positively and investors’ interest in shares increased, and with it the rise in market prices. Major US stock market indices such as DJIA, NASDAQ or S&P 500 closed this trading day with an increase of over 1% and the NASDAQ index even added 2.15% in a single day.

On Wednesday, 15 December 2021 the Fed provided some indications that its ultra-easy monetary policy has been coming to an end and is making aggressive policy moves in response to rising inflation. First, the central bank said it would accelerate the reduction of its monthly bond purchases, and starting in January 2022, the Fed will buy US$ 60 billion worth of bonds each month, half the level before the November taper and US$ 30 billion less than it had been buying in December. In the beginning of 2022, the reduction in the Fed’s buyouts will continue to accelerate, and once it is finished, the FOMC estimates that in early spring it will start raising interest rates, which were left unchanged at this last meeting. Projections released on Wednesday, 15 December at a press conference following the FOMC meeting also suggest that Fed officials expect up to three interest rate hikes in 2022, two next year and two more in 2024.

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