Risk-on Assets Recover and Start Rallying After Fed Chair Pushes Back Decision on Tapering to November

While stock and crypto markets both were recording losses in anticipation of the first signal of tapering, the Federal Reserve has eased any concern for now.

US stocks extended gains after the release of the statement, with the S&P 500 advancing 0.95%, Nasdaq finishing 1.02% higher, and Dow gaining 0.74%. The yield on the benchmark U.S. 10-year note meanwhile edged lower.

The US dollar index dropped 0.4% to 93.14 before recovering to nearly 93.2. Gold is currently down at $1,771.50 per ounce.

The crypto market recovered nicely, with Bitcoin around $44k after hitting a $39,500 low. Ether is also nearing $3,100 after seeing $2,650 on Tuesday. The total crypto market cap is now at $2.05 trillion, up from the $1.85 trillion low.

In the past 24-hours, the biggest gainers include Arweave (26%), Cosmos (22%), Terra (22%), Avalanche (20%), Elrond (16%), Tezos (16%), and Solana (11%).

On Thursday, the central bank said it would likely begin reducing its monthly bond purchases at the end of this year.

A drawdown of $120 billion monthly bond purchases could begin after the policy meeting to be held on November 2-3 as long as job growth through September is “reasonably strong,” said Fed Chair Jerome Powell in a news conference following the central bank's latest two-day session.

“It wouldn't take a knockout or super-strong employment report” to start the tapering, with the process expected to wind down by the middle of next year, Powell said.

The US unemployment rate fell to 5.2% in August, from the April 2020 peak of 14.8% but is still above the 3.5% rate recorded in February 2020, just before the pandemic struck.

The central bank wants its purchases of Treasuries and mortgage-backed securities to end before it starts lifting borrowing costs, which projections showed officials expect to happen next year.

As such, the Fed also signaled that the interest rate increases might come more quickly than expected. The new policy statement showed that nine of 18 officials are ready to raise interest rates in 2022 in response to inflation that the Fed now expects to run at 4.2% this year, more than double the 2% target rate.

Current targets for interest rates were kept steady by the Fed at a range of 0% to 0.25%.

Powell told reporters financial conditions would remain accommodative even after the asset purchases are stopped and emphasized that the decision on the bond-buying program was separate from actions regarding interest rates.

With the tapering decision postponed, for now, the markets reacted positively, recovering from this week’s deep losses.

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