Moneycontrol Pro Panorama | Fed minutes set off taper talk jitters

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The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

“It is the little rift within the lute, that by and by will make the music mute,” wrote Alfred Tennyson in Idylls of the King.

Markets have been hardly idyllic in recent months as the spectre of inflation in developed markets raised its head. Amid rising commodity prices, US consumer price inflation jumped to 4.2 percent in April, the highest since 2009. Fed Chair Jerome Powell has been hard at work in trying to soothe the markets’ angst by saying the spurt in inflation is transient.

In its last meeting on April 27-28, the Fed Open Market Committee (FOMC), voted unanimously to keep rates changed and continue with asset purchases of $120 billion a month till there was “substantial progress” on inflation and employment goals. Powell had also said talks about pulling back of monetary accommodation were premature.

But the minutes of that meeting released yesterday night has at least some members starting to think about a withdrawal plan for the ultra-loose policy.

“A number of participants suggested that if the economy continued to make rapid progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the minutes said. Remember that the Fed balance sheet has swelled to twice the size of what it was before the pandemic.

In any case, a tapering of asset purchases – the first step in a withdrawal of ultra-loose monetary policy -- is still quite some time away since the panel would like to see the economy performing consistently. Recent data like the jobs report for April will only stay the Fed’s hand in even talking about reducing asset purchases, leave alone a rate hike.

Still, the minutes were cue enough for a US bonds and stocks sell-off. Yields on US treasuries rose and US dollar inched up. The Dow Jones shed half a percent overnight. Gold also rose because of its safe haven appeal during inflationary times as well as thanks to the crash in bitcoin.

For investors in Indian markets, which attract a lot of flows from abroad, the FOMC meeting remains a key event to monitor. The next one is scheduled at the end of June.

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Our chartists’ technical calls for the day (Please note these calls are published before the markets open on trading days): Escorts, SBI Life, Hinduja Global Solutions and SBI

Ravi Krishnan

Moneycontrol Pro