Fed chair signals faster tapering of stimulus

Fed will discuss, at its December 14–15 meeting, the option of accelerating the pace of its bond-buying taper. Powell said this, CNBC reports.

In November the Fed agreed to taper its quantitative easing from the current $120 billion to $15 billion per month, through June 2022. In remarks to the Senate on November 30, Powell allowed that this process could finish “a few months earlier than expected”.

Earlier he noted that rate hikes would not occur until the withdrawal of stimulus is complete. In other words, the Fed could tighten policy if needed as early as spring 2022. At the same time, the chair stressed that these events will not necessarily follow one another.

The push to revise the Fed’s stance came as inflation rose, reaching a 30-year high in October (6.2% year on year). Powell and many of his colleagues had previously stressed that the spike was temporary.

“Probably now is the right time to drop that word [‘temporary’] and try to explain more clearly what we mean. […] Our policy… will continue to adapt. We will use the tools to ensure that higher inflation does not become entrenched,” he explained.

The shift in the Fed’s rhetoric lifted the dollar and soured sentiment in the U.S. stock market — the S&P 500 ended trading on November 30 down 1.9%.

The cryptocurrency market, after Powell’s remarks, halted its rebound. Bitcoin fell from $59,000 to $57,000 within two hours and, at the time of writing, remained near the levels seen before, according to CoinGecko. Ethereum declined to $4,520, but later recovered to above $4,700, levels observed prior to the Fed chief’s remarks.

Analysts at Glassnode doubted the continuation of the correction in the cryptocurrency market. They pointed to a high share of “profitable” coins and a balanced situation in the crypto-derivatives market.

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