The Fed is testing the reaction of the markets

By 04/06/2021News
morning-news

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DAX   15635,50
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The US Federal Reserve has announced new plans. By the end of 2021, it wants to sell off the corporate bonds it bought at the height of the coronavirus pandemic in 2020 from its balance sheet.


S&P 500

S&P 500

Of course, these are still small numbers, around $14bn. It is a drop in the bucket compared to the $120bn in government and mortgage bond purchases each month. However, it is worth pointing out the fact. The Fed is about to sell some assets off its balance sheet and remove a small amount of liquidity from the system.
At the time before covid, in the autumn of 2017, the quantitative tightening programme also started with a small amount of $10bn a month. No one was paying attention at all at the time. But by the end of the following year, many were no longer laughing. It is worth remembering the precipitous drop in stock markets in December 2018. After that, the Fed came to its senses and started pumping money into the economy again.
There is still a long way to go now. The Federal Reserve is supposed to announce plans to slow down the printing press in the near future. But judging by the regulator’s actions and rhetoric, this process could be stretched out over time. Most likely, it is being done to pump as much money into the system as possible. In the future it will allow buying government bonds to finance the huge hole in the federal budget.
It is important for traders to remember that a lot will depend on the unemployment data which is released today. Last month the reality was like a nightmare. If the opposite happens now, it will untie the Fed’s hands for more signals about tightening monetary policy.

11.00 EU retail sales in April
14.30 US Unemployment Rate for May
14.30 Canadian unemployment rate for May


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