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Judgement Day for the Fed -Breaking

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© Reuters. FILE PHOTO – The Federal Reserve Building is seen in Washington (U.S.A.), October 20, 2021. REUTERS/Joshua Roberts

Saikat Chatterjee’s perspective on the future.

This is the moment to be in the market’s most anticipated event of the year.

A $15 billion per monthly taper broadly priced into is what the U.S. Federal Reserve plans to announce on Wednesday.

How Chair Jerome Powell views transitional inflation as a result of one-off effects like supply chain shortages and signals that this will have a longer term effect will determine the outcome for traders.

The latter would give money markets, which already price in an incredible 80 basis points rate increases by the end of 2022, a boost. This would put pressure on policymakers, who will need to increase their forecast for a rate rise starting in 2023.

According to a Reuters survey, even if Fed can balance its act delicately, the greenback could retain a substantial portion of 2021’s close 4.5% gain for yet another year. The Fed’s increasing rate differentials against its counterparts is why this happens.

The fireworks of bond markets over the past weeks have made equity markets largely indifferent to them. However, if yields start rising again, it could lead to equity markets taking a dive.

U.S. stock markets are moving lower ahead of the Fed’s decision while European stock futures continue to consolidate gains. As new COVID-19 infections in China have risen to an almost three-month peak, Premier Li Keqiang warned that the economy is under pressure.

Benchmark yields on 10-year U.S. debt is holding well below last week’s highs while stock and currency market volatility, though slightly higher, remain pinned near 2021 lows.

Other than that, oil prices declined as data from the industry indicated a large buildup in U.S. oil stockpiles and increased pressure on OPEC oil producer group to increase their supply.

On Wednesday, key developments should give more direction to the markets:

– Speaker corner of the Central Bank: Lagarde and Centeno. Villeroy

Credit Suisse To tighten the reins following a series of scandals

Composite PMIs: U.S., UK

ADP private payrolls

Lufthansa profits as the travel industry is hampered, Zalando loses its profit

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