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US Close: Stocks survive Fed taper setup

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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.

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023. 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. Prior to OANDA 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, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
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