Following the Fed meeting, Asian markets rallied, led by a surge in Hong Kong.
The Federal Reserve admitted the US economy was on pace but said it would not taper monetary policy just yet, and Hong Kong was lifted after China sought to calm investors over its latest regulatory crackdown.
Traders were also encouraged by movement in Washington on President Joe Biden’s trillion-dollar infrastructure program, which he has described as having the potential to “change America” and add to the massive sums of stimulus already injected into the world’s most powerful economy.
Concerns about the spread of the Delta coronavirus strain, which is increasing infection rates in multiple countries – including those with high vaccination rates – and driving some governments to implement lockdowns or other containment measures, were overshadowed by the developments.
Following a widely watched meeting, the Fed stated that the epidemic recovery was progressing well, but that it was still too early to remove the ultra-loose policies that have helped the economy recover.
The central bank has stated that it will continue to buy bonds in large quantities and maintain historically low interest rates for as long as it is necessary to reduce unemployment and keep inflation high for a protracted period of time.
The worst-affected industries have “shown progress but have not fully recovered,” according to the report, which also warns that “risks to the economic outlook remain.”
“We’re not there,” Fed Chairman Jerome Powell told reporters, referring to a moment when the Fed may begin tapering. And we think we’ll have to cover some ground to get there.”
He did say, though, that policymakers had done a “first deep dive” into how to start tapering down bond purchases, but that no decision had been made.
With no meeting scheduled for August, observers believe the bank will wait until the end of the year to act.
“The Federal Reserve’s absence of significant policy change at its most recent… meeting was widely expected,” said Tai Hui, a strategist at JP Morgan Asset Management.
“What’s interesting is the Fed’s assessment that the US economy is ‘making progress’ toward its objectives — a strong indication that it may begin to trim its asset purchases as early as December.”
Mansoor Mohi-uddin of the Bank of Singapore agreed, adding, “This gradual withdrawal is hence anticipated to continue benefitting risk assets during 2021.”
Meanwhile, traders are keeping an eye on developments in Washington, where Biden’s infrastructure package was passed by the Senate after weeks of discussions.
To formally begin debate, the bipartisan bill was passed with 17 Republicans joining all 50 Democrats.
The Fed’s announcement was welcomed with a shrug on Wall Street. Brief News from Washington Newsday.