Quantitative easing and the “printing of money”
One of the most important topics of the FED meeting was the quantitative easing (known as QE). After the dump in March 2020 the “printers” of FED have started to work harder than ever before, leading to creation of more than 120 billions of dollars per month.
This decision was seen in the markets, since it was the biggest stimulation that the world has ever seen. Yet, during that time, it was clear why FED made this decision. Economy was slowing down and had to recover from sharp shocks due to pandemic. Thus, FED had no other choice than to react. However, since the moment, when the World Health Organisation (WHO) official claimed Covid-19 a pandemic, a year and a half have passed. The whole world got almost back to normal, yet, Fed is still printing 120 billion dollars a month. Therefore, many people wondered, when will this stop or at least slow down.
FED obviously cannot stop the QE suddenly, but rather has to “surprise the markets with few small shocks.” Yesterday, we have seen the first “shock decision” from the FED, since it decided to lower the monthly asset purchases by 15 billion dollars to 105 billion. However, since this number is still excessively huge, this message was perceived as positive for the markets. If the decrease was about to be much higher, the markets could descent into chaos, which is something that FED knows very well, and decided to play it safe.
When it comes to the interest rates, there have not been any major news regarding this topic. The interest rates will therefore remain the same. However, for the next year, we can expect interest rates to be increased at least partially as a reaction to the inflationary pressures. It is only a matter of time till FED starts with sharper decreases in QE and rate hikes.
I believe that this meeting went fairly well and the markets are not somehow dramatically affected by it. As of now, I do not see any reason for panic or chaos that would need to spread around the markets. It is probable that the markets will continue rising. However, tampering of QE and interest rate hikes can be expected probably in the upcoming year. Yet, nobody really knows the true fitness of the economy, which is a reason why any decision of FED needs to be very cautions.