Key points
1.The interest rates remain unchanged.
2.Tapering has increased in December from 15 billion dollars to 30 billion dollars.
3.The year 2022 should see interest rate hikes on three occasions.
What was the immediate reaction in the charts?
If we look at the chart closely, we can see that during the meeting the chart was slowly going upwards. The market appears to be liking these decisions and it is possible that we might see new maximums in coming days. Its more than obvious that markets interpreted this news as positive.
S&P 500 1h chart
What does this mean for the future?
I believe that markets reacted this way mainly because the decision from FED was expected. Tapering was talked about on several occasions before. It was also expected that as of now, the interest rates will not change. Due to the new policies in place, tapering should be over by March 2022. Moreover, Jerome Powell has specified that the interest rates hike will only began once the tapering is over.
This is one of the reasons why they mentioned that it is possible that in the coming year, we can see the interest rates rise three times. Good news is that Powell is signalling this well ahead, which means that the markets can already start pricing this information in. This means that even the increase in interest rates itself does not need to be met with negative reaction. The decision to announce this is definitely good for the overall health of the markets, since the reaction to unexpected rate hikes would probably be more severe.
Conclusion
S&P 500 reacted positively to the news which came about from the FOMC meeting. FED played it really well and has solid options for the future policies. The unprecedented stimulus will need to stop soon, since inflation is increasing all around the world. Central banks have to start solving this problem as soon as possible, which is one of the reasons why we can really expect rate hikes in 2022. The only question now is whether FED can keep this speed of tapering and what would be the reaction of the market. If the reaction will be negative, it is possible that FED will have to ease the monetary policy again.
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