Monetary Policy Aggressiveness

All eyes this week were on the central banks’ rate decisions and monetary policy approaches. As it was expected the federal reserve announced its aggressiveness and seriousness in fighting the constant increases in inflation rates, given the sudden increase in prices witnessed during the pandemic.


The new approach included an increase in the asset tapering momentum from the reduction of USD 15Bio per month to approximately USD 30Bio, which in return reduces the tapering period from June to March of 2022


Aside from the tapering, governor Jerome Powell announced the possibility of 2 to 3 interest rate hikes in 2022 starting from March, and further hikes might occur in 2023 and 2024 depending on the recovery pace.

Consequently, major US indices increased vigorously re-testing all-time highs, which shows that the investors are optimistic about the global recovery and in specific in the U.S, however usually when hinting about interest rate hikes, the normal reaction in the market should be a bearish movement given the higher cost of lending


What was interesting is the correlation between gold prices and the U.S indices, whereby we saw the same direction movements for both despite being of opposite nature and characteristic


Gold recovered by approximately USD30/Ounce in yesterday’s session, increasing by approximately 1.8% compared to the increase in S & P 500 that was recorded for 2%. 


On another hand the appetite also went towards the cryptocurrencies market, whereby bitcoin increased by approximately USD 2,000 in yesterday’s session, reversing off the universal level at the 50 SMA


Worth noting that the general director of the “World Health Organization”, Adhanom Ghebreyesus stated for the first time that Omicron is spreading at a very high and alerting rate, and is now spread in more than 77 countries globally


He also stated that 2 dosages of vaccines are less effective against the new variant, the booster shot is a must despite the concerns from the WHO, investors partially weighted the Fed’s decision as more important at the moment


The big question now is, was the federal reserve decision too aggressive taking into consideration the fears that might occur from the new variant? And will 2022 observe the expected growth?


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