Doubled bond taper and three rate hike!
Last night we finally had the FOMC meeting announcement and Mr. Powell's press conference. FED left the rates unchanged but increased the tapering pace twice more in January to end the asset purchasing program in the middle of March 2022. All happened exactly how the market was expecting!
Now the main question is that why the market reaction was bullish to the news. There are two guesses for that. The first guess is that we have to wait for today's US market to open and see the real market reaction. And the second guess is FED's economic expectations and outlook.
While we have the bank's dot plot which shows that Fed members' expecting three rate hikes in 2022, much more hawkish than earlier estimates and expectations from FOMC members, its economic outlooks are great. Let's check some of them together.
According to the FED estimates, we can see well than earlier estimates of GDP in 2022 and 2023. At the same time falling PCE inflation all way down to 2.6% in 2022 from the current 5.3% and even higher is amazing progress, especially with 3.5% unemployment expected.
Therefore putting these data together tells us why we have to see more bulls in the charts even with Hawkish policies. As Mr. Powell also mentioned in his press conference, the economy is increasing amazing and progress is great, therefore a great economic outlook helps the inflation to decrease. End of the day, we have full employment, an increasing economy, and lower inflation, all that stock markets need to increase!
Increasing stocks in 2022 were the consensus expectation, but as a shock of hawkish policy, we were waiting to see a small correction by year-end. FOMC announcement and decisions were exactly in line with consensus estimates, therefore we had no surprise and no correction in the market.
From the technical point of view also indicators remain bullish with RSI at 58, increasing OBV trend line and price above both 20 and 50 DMA. The first support sits at 4,650 (20 DMA) and the main supports for the long run sit at 4,550.
