The Fed will announce cuts to its stimulus program in September.
It is no secret that one of the key topics in the U.S. now is the Fed's quantitative stimulus program. The program, which allows the U.S. regulator to inject at least $120 billion into the U.S. economy every month. The program that helped the country's inflation rate jump to an unprecedented 5.4% y/y for 13 years. But it was this program that allowed the U.S. economy to recover very quickly from the crisis and pandemic.
Printing hundreds of billions or even trillions of dollars all the time is not an option. The US has long been used to this, but the Fed is trying to achieve in addition to a full recovery of the labor market and economy also a stable inflation rate around 2%. Given that many other central banks around the world are striving for this target level of price growth in a single year, we conclude that this is the "right" level of inflation. However, there is no way to lower the rate of price increases without reducing the injection of cash into the economy. In recent months, there has been a lot of talk about when the Fed will announce the timing of its QE program. In recent weeks, several members of the Fed's monetary committee said they were ready to support the end of the program in the near future.
The Fed will announce cuts to its stimulus program in September.
Reuters conducted a survey among U.S. economists, the results of which showed that the vast majority believe that in September the Fed will formally announce its plans to reduce the purchase of assets. Economists came to this conclusion after it became known last week that the unemployment rate fell to 5.4% and NonFarm Payrolls grew by almost 1 million jobs for the second month in a row.
Of the 43 experts polled, 28 said they believed a tapering of QE would take place at the September meeting. The rest stated in favor of the fact that the regulator will wait with this decision till November or December. Recently Jerome Powell himself did not touch the subject of quantitative stimulation and did not comment on it. However, earlier he said that the U.S. economy is not yet ready for the end of stimulus. However, the Fed is unlikely to cut the program completely at once. Most likely, in September it will only talk about the plans and timing of its gradual reduction.
Thus, the probability that it will really happen at the next Fed meeting is really high. The American currency might react to this news with growth. However from our point of view, it is unlikely to be strong and durable. The stock indices in the U.S. are unlikely to change their upward trend in the coming months. We have already said that they continue to rise precisely because the Fed prints tons of money, which eventually moves to the stock market.
So as long as the Fed keeps pouring money into the economy, stock indices may continue to rise.
Report
My comments