US Close: Stocks survive Fed taper setup

The Fed has officially given notice that if the recovery continues as planned, a moderation in the pace of asset purchases can happen soon.  Wall Street can now completely price in a formal November taper announcement with a December start date.  The dot plots show the Fed officials are trying not to show a hawkish hand as they are split over a 2022 hike, only two more officials move forward their dot.  The medium dot plots show the Fed is hesitant in showing they are willing to bring rates to a normal level.  The Fed still sees risks of higher inflation and that story may help accelerate interest rate hike expectations next year.

Risky assets loved the FOMC statement and updated projections as the Fed has well telegraphed that they were nearing a taper announcement and continue to show they are in no rush to deliver interest rate hikes.  The biggest risk to the stock market is accelerated pace of tightening and the Fed is showing that is something they will avoid unless they were dead wrong about inflation.

US stocks rallied as investors believe the Fed will be in no hurry to raise interest rates as they still think inflation will be transitory in 2022.  The Fed’s goal is to taper without triggering a significant steepening of the yield curve and that was the initial reaction to the statement.

The S&P 500 index, Nasdaq and Dow Jones Industrial all rallied over 1%.  The dollar was all over the place during the Fed event and settled higher.  The fascinating price action came with Treasuries that showed the curve flattened.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya