Background

The Federal Reserve has announced a $120 billion bond purchase program that began in March 2020. Fed analysed that from the last six months GDP and employment was slowed down. Chair of the Federal Reserve Jerome Powell provided a few suggestions on how rate hikes and inflation will set market direction.

The Federal Reserve has announced a $120 billion bond purchase program that began in March 2020. Fed analysed that from the last six months GDP and employment was slowed down. Chair of the Federal Reserve Jerome Powell provided a few suggestions on how rate hikes and inflation will set market direction.

The Federal Reserve provided a lot of employment opportunities to control the inflation for last two years, but over the last six months, inflation has become its most pressing concern.

As inflation has already taken place, so the Fed analyses the inflation graph and prepares policy accordingly.

At last, that has not turned out to be the case. It gets turned opposite, which results in the shortage of employee and an increase in inflation. So, Federal Open Market Committee (FOMC) meeting released on May 19, provided a hint related to price down, but analyzation consumption rate reached 30-year highs of 4.4% and 3.6% in September.

Now, because of the labour shortage, the prices of the products get increasing. So, Jerome Powell acknowledged all the factors hat price pressures are strong and more durable than they had anticipated. He provides an altered outlook on inflation.

After all this, it came to know that the main issue is employment. To solve this, In June and July, when NFP hiring averaged over ne million positions a month. At that pace, a full recovery by year-end seemed possible.

But in August and September, job creation collapsed and had a total of 560,000 hires, barely one-quarter of the 2.09 million in June and July. Now, the employee hesitates to get back to work because of the COVID situation and the number of job offers.

The labor shortage is aiding inflation in two ways. Either to pay higher wages or to compensate more to existing employees. It's a desperate argument as employers are more than workers, which leads to Product scarcity and manufacturing restrictions from worker, omponent, and raw materials shortages. It increases the demand of the customer, a hike in price by manufacturers and retailers, and leads to inflation which again creates a problem for Fed.

Despite Fed Chair Powell’s repeated insistence that reducing the bond program is not a rate hike, the difference is semantic. arkets have not been fooled.

This yields a benchmark 10-year Treasury note that has gained 22 basis points from the FOMC. US interest rates got higher. The Fed might experiment with the pace however, the rise cannot be avoided. As if the market wants to extend its business it will require funds. This result is an increase in Fed funds. Now the stability starts in 2022 from when the program gets started.

When the market begin to stand taper foregone, the fed had good control over it. While, the market expects a $15 billion eduction, Fed is free to enact it as the impact is linear.

Equities depend upon economic growth. The rise in economic growth will lead to an increase in profit incorporation.

What Market Needs

Markets anticipate a monthly reduction that ends the bond-buying program by next June.

Fed offers an ad-hoc schedule that they can be extended the program by end of one year or beyond. Its effect is straightforward, the faster the reduction, the better for interest rates and the dollar.

Mr. Powell has decided to be extremely careful with his choice of words and is concerned about inflation. He will focus on the increase in economic growth and rate of assumption.

In the latest Fed decision, the key rate has increased by 50 bps, the biggest in the last 22 years.

The U.S dollar index tested all-time record highs and executed pressure on Gold and other majors. We expect the pressure to continue on other asset class