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Volatility high on investors’ minds

The US Federal Reserve Open Market Committee (FOMC) meeting unanimously agreed to hold rates where they are in the latest two-day meeting, which should not come as a surprise to many.

Thursday, July 29, 2021

The US Federal Reserve Open Market Committee (FOMC) meeting unanimously agreed to hold rates where they are in the latest two-day meeting, which should not come as a surprise to many. The tone of the statement was a little more hawkish though on the potential pathway to tapering. Previously Fed officials have indicated they would need to see substantial progress towards their goals but now they have dropped the word substantial in their assessment of where they feel the economy has progressed. It would seem at first blush that they are some way down the path now to eventual tapering. The markets have assumed that November would be the earliest they could announce that tapering will soon begin – not long for investors to pre-position for it.

On the inflation front, the FOMC acknowledged that it might start to become more persistent rather than keeping to the transitory language used previously to describe the inflation surge this year and maintained that it will react if necessary, although when is another question. In the press conference that followed the latest meeting, Fed Chairman Powell could not have sounded more dovish saying that the Fed is a long way from raising rates and even verbally dropped back in that the economy has still not seen substantial progress for them to consider talking about tapering just yet. When a statement and subsequent press conference do not wholly align it is difficult for markets – equities fell on the statement to reverse and go higher after the press conference. Volatility remains high on investors’ minds.

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Charles Hepworth

Investment Director
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