09.11.202107:41 Forex Analysis & Reviews: Fed: monetary policy to be tightened, though at very slow rate

Last week was exceptionally favourable for the US stock market. Besides, there are no changes at the beginning of a new week.The S&P 500, Dow Jones, and NASDAQ continue rising almost every day, renewing their all-time highs. Thus, we consider that the markets take further advantage of the Fed liquidity, though they are aware that this process is temporary. Consequently, it is highly significant to take profits on the stock market now as next year the Fed promises to completely roll back the quantitative easing program and to start raising rates. Notably, the Fed does not adopt the world's hawkish position concerning this issue. It is rather strange as the Fed commonly sets the tone for the rest of the market participants. Besides, it is not surprising as the Federal Reserve is the central bank of the country with the largest world economy. However, this time the Fed may overtake the Bank of England. Moreover, the British monetary committee members are already quite unexpectedly considering raising the key rate. At the last meeting of the British regulator, two members of the monetary committee voted to raise the rate and three officials voted to curtail QE. Thus, the Fed is now taking the dovish position on the issue of tightening monetary policy.

We are concerned that this stance may become even more dovish. The fact is that the Federal Reserve has to constantly react to current events. If overall economic and financial conditions deteriorate, the measures that have already been taken may not be sufficient. Besides, the situation could worsen dramatically as early as this Wednesday, when the US inflation report will be released. According to experts' forecasts, inflation may rise to 5.8%, a figure that has not been observed for 30 years. Moreover, it could continue increasing. Thus, the QE rollback measures announced last week may be too weak to curb further inflation. Besides, the consumer price index could continue to grow without time limits. It is already being widely discussed in the media that inflation could be very high for much longer than Jerome Powell or Janet Yellen state. The financial markets continue to inflate, as well as the US national debt. It should be raised again in the near future as a technical default will also threaten the United States after December 3 if it is not fulfilled. So far, the Fed's policy is extremely dovish, which is favourable for stock indices and the US stock market. Besides, this policy is beneficial for bitcoin and other cryptocurrencies. They have also continued to strengthen in recent months.