General Discussion
Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsThe Fed could make a big change today. And no, we're not talking about interest rates
New York
CNN
Wednesdays Federal Reserve policy decision will likely be pretty boring for investors officials are widely expected to keep interest rates the same, just as they have since July 2023.
But some savvy traders are getting excited about another key decision. They think that the Fed may curtail its quantitative tightening (QT) program thats the selling off of its assets to decrease money supply and increase interest rates by as much as half.
Whats happening: The Fed bought a ton of government-backed bonds between 2020 and 2022 to help support economic recovery after the pandemic-induced recession. Those purchases ended up pushing down interest rates in certain parts of the economy, like housing and auto sales.
In mid-2022, as inflation soared higher, the Fed reversed that and began unloading those bonds.
What it means: May 1 is set to be a big day in the bond market, Evercore ISIs Krishna Guha and Marco Casiraghi wrote in a recent note.
If the Fed does ease up its tightening policy, financial markets will likely see the taper of the QT program as bullish for riskier investments like stocks and bonds at the margin, wrote Bill Adams, chief economist for Comerica Bank, in a note on Tuesday.
Thats because a taper should send bond prices higher, and interest rates lower.
The risk, wrote Bank of America analysts on Tuesday, is skewed to the upside for stocks, in our view, especially given a potential QT taper announcement.
Well this is interesting.
RainCaster
(10,978 posts)that's a good thing.
Go fed!
I have a friend who was talking about his high mortgage payments, and that if interest rates drop a bit it would help him. A lot.
MOMFUDSKI
(5,877 posts)at 12 and 13 percent. Helped the savers. Guess there is no way to appease everybody.
Dave says
(4,645 posts)What does this mean for my bond ETFs?
IronLionZion
(45,706 posts)lower rates means higher prices for bonds. Rates and prices go in different directions.
Johnny2X2X
(19,394 posts)Separately, the Fed on Wednesday announced changes to its program for reducing the size of its balance sheet.
Beginning June 1, the Fed will slow the pace of Treasurys rolling off its balance sheet on a monthly basis to $25 billion from $60 billion and maintain the cap on mortgage-backed securities rolling off at $35 billion a month. The central bank will reinvest any principal payments in excess of this cap into Treasury securities.
IronLionZion
(45,706 posts)Good news for folks invested in bonds, like me. I would hope DU's retirees are invested in bonds. This means lower yields and higher value.
I believe stocks are already overvalued but there are risky opportunities there if you have the appetite for it.
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