From USD 120 billion of bond purchases per month, the Fed will drop to USD 105 billion.
The Fed plans additional monthly bond purchase reductions through July 2022.
The United States Federal Reserve (the Fed) will keep interest rates at minimum levels and will reduce the monthly purchase of bonds by 12.5%, which until now stood at USD 120,000 million per month. During a press conference on November 3, Jerome Powel, the president of the Fed, pointed out that the measures are intended to achieve the goal of maximum employment and keep inflation as close to 2% as possible.
Shortly after ad, there was a rebound in the price of bitcoin, after a sharp decline in the first minutes of Powell’s speech. The price rallied about 2%, from $ 62,211 to $ 63,378 in one hour and then fell back to $ 62,866.
After the declaration of a pandemic by the WHO in March 2020, the Fed opted for a policy of quantitative easing, which included printing money. This manifested itself in the acquisition by the federal reserve of treasury bonds and mortgage-backed bonds, for a total of USD 120,000 million per month, for more than a year ago.
The Fed’s monetary expansion policies, which are associated with uncertainty regarding rising inflation, have been favorable to bitcoin, as investors perceive it as a store of value. The reduction of the acquisition of bonds, on the other hand, could affect a decrease in liquidity and cause a less attractiveness of cryptocurrencies for investors.
However, the initial reduction in the price of bitcoin, as soon as the Fed’s press release became known, was apparently offset by purchases by bitcoin holders and the price remained above $ 60,000.
Gradual reduction of bond purchases will begin this month
In his speech this afternoon, Powell affirmed that the first reduction in the purchase of bonds will take place this month, according to the decisions of the Federal Open Market Committee (FOMC). One of the agreements of said committee is to reduce the monthly purchase amounts of treasury bonds and bonds guaranteed by mortgages.
“Starting this month, the committee will increase its treasury bond funds by at least $ 70 billion per month and its mortgage-backed bond funds by $ 35 billion,” Powell said in his address.
This implies a reduction from a total of USD 120 billion to USD 105 billion, or a reduction of 12.5%. In December, the committee aims to cut about $ 15 billion to bring that month’s purchases to $ 90 billion.
The Committee believes that similar reductions in the pace of net asset purchases are likely each month, but is prepared to adjust the pace of purchases if changes in the economic outlook warrant.
FOMC statement. US Federal Reserve
Powell estimates that if similar cuts occur each month, additional security acquisitions are likely to be at a low value by July 2022.
Yahoo Finance reported that Wall Street’s top stocks and indices they also appreciated with the announcement of the Fed. The Dow Jones Index rose 0.29%, the Standard & Poors 500 increased 0.65%, while the Nasdaq rose 1.04%. Gold suffered a slight decline with the announcement, of -0.87%.