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The US Federal Reserve’s latest move to get off the stimulus tiger was barely perceptible. After yesterday’s meeting, the Federal Reserve said the economy has made progress towards its goals of low unemployment and stable inflation. But, till it makes substantial progress towards these goals, the Fed has vowed to keep up its policy of providing support to the economy by keeping interest rates low and continue with a bond-buying programme worth $120 billion a month.
It’s only when the Fed feels comfortable saying substantial and progress in the same breath that it may signal the start of the taper. As of now, it’s plain vanilla progress that’s taking place.
Markets were left rather unmoved by the Fed’s statement. And that’s exactly what the Fed may have wanted. Its observations may seem obvious but by voicing them, it has ended the suspense on what lies ahead. What's uncertain is the timing and the extent to which the stimulus is likely to be tapered, which depends on the data.
And this is the data that the market can see as well. In fact, data is what had led to bond yields spiking much before the Fed opened its mouth on this issue. The discussion, along with market movements, over a taper and an interest rate hike makes it easier for the Fed to then show its hand eventually, with the decision itself possibly proving to be an anti-climax.
The Fed may have taken some parenting tips on how to prevent a tantrum, and expert views on what works include: communicate clearly, repeat again and again, be consistent, establish boundaries and have realistic expectations.
Here’s our research team’s take on the Fed statement, what data points is it looking at and the risk of unequal vaccine coverage to emerging and therefore to the global economy. For equity investors, emerging markets have been underperforming in the past three to six months and that means investors should take refuge in pockets of strength. Do read to know more.
We also found that the unequal economic recovery is showing up in how stress is building up in the retail borrowing segment, as seen in the numbers reported by lenders. The market may not be worried, hoping that this is transitory, but the government needs to provide more relief to small businesses and distressed retail borrowers, so that they can get enough support to tide over this difficult period.
Investing insights from our research team:
Maruti: Drop in demand, pricey inputs dent numbers; outlook positive
Nestle India: Double-digit sales growth continues amid margin pressure
Dixon Technologies: Multiple catalysts ahead Navin Fluorine: Speciality chemicals and CRAMS to lead the way
What else are we reading today?
Should India alter its Make-in-India playbook to suit Elon Musk?
Do Indian markets have enough capacity to absorb the spate of initial public offers?
China's tech crackdown unlikely to cause much damage
House panel gets MSMEs' troubles right, but not the solutions
Have we entered a new phase of climate change? (Republished from the FT)
A case for going beyond economic reforms
What should Bitcoin investors do after the recent rally? Technical Picks: Tata Elxsi, Ambuja Cement, Tech Mahindra and TVS Motor Company
Ravi Ananthanarayanan
Moneycontrol Pro
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