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Yesterday, the Federal Reserve announced that it had doubled the pace of its assets to $ 30 billion per month, which was slightly more belligerent than consensus expectations. Rather than end all asset purchases today, Jerome Powell emphasized that a calculated and methodical approach to gradually reducing asset purchases is a more stable approach for the markets. The current plan calls for an end to asset purchases by March 2021, with the market expecting a high probability of three interest rate hikes in 2022, up to 100 basis points.
Regarding cryptocurrencies, Powell said he does not see them as a major financial stability issue, but that the leverage in the system is worth watching. He noted that they are risky and speculative while highlighting the potential benefits of stablecoins if they were to be regulated.
That said, Powell made a tremendous amount of conciliatory comments in his Q&A despite the more hawkish actions, indicating that the Federal Reserve is ready to pivot its much-needed policy with more accommodative monetary policy. This is a favorable short-term signal for the markets. We will see a real monetary tightening policy start to play in the markets if rate hikes take place in March.
Following announcements of the Fed’s expected cut policy, bitcoin and stocks rallied in tandem, indicating the meeting was a rumor-and-buy sell of the type of topical event.