US Federal Reserve prepares to cut quantitative easing program

At yesterday’s Fed meeting, Jerome Powell said that the US central bank planned to start cutting the QE program shortly, but nothing was said about specific dates. However, the Rate Settlement Committee revised the statement after the meeting and indicated that the Fed might start cutting its monthly asset purchases by $120 billion as early as its next meeting on November 2-3. An interest rate hike is likely to happen in the second half of 2022. A good jobs report would support the start of the cuts in November.

During the Fed meeting, US 10-year bond yields initially decreased to 1.306% as the Fed was not yet ready to cut stimulus. But after Mr. In Powell’s speech, the yields increased to 1.333%, sending gold and silver prices down. Gold and silver have an inverse correlation to the dollar index and government bond yields.

Oil rose in price after a report on US crude oil inventories showed another significant decline. Crude oil inventories were -3.48 million barrels compared to the -3.02 million expected. Analysts at Goldman Sachs said a cold winter could suppress the oil market’s ability to make up for supply shortfalls, leading to a price spike with consequences for the economy. The bank said nearly 2 million barrels of oil a day could be needed for power generation and industrial purposes.

Asian currencies are falling as the Fed’s reduction plan is boosting the dollar index. But Asian stock indices take advantage of the fact that the People’s Bank of China has added liquidity to the banking system to suppress concerns about the debt problems of major real estate developer Evergrande. Hong Kong’s Hang Seng and China’s CSI 300 increased by 0.7%, while Australia’s ASX 200 added 1%. South Korea’s Kospi decreased by 0.6% after a 3-day bank holiday. Japanese stock markets are closed because of the holiday. Singapore’s consumer price index increased by 2.4% in August compared with a year earlier, contributing to a significant increase in food, housing, transport, and utility spendings.