Jakarta, CNBC Indonesia – Investors in the United States (US) enthusiastically welcomed the confirmation of the central bank (Federal Reserve / The Fed) stating policy quantitative easing (QE), or bond purchases on the market, were reduced this year. Not afraid taper tantrum?
In his remarks at Jackson Hole, the Fed’s annual symposium attended by central bank officials from around the world, Fed Chair Jerome Powell stated that monthly bond purchases – worth US$ 120 billion so far – will be reduced before the new year.
However, he emphasized that the policy tapering This policy will be carried out separately or not in conjunction with the policy of raising the benchmark interest rate. According to him, more tests are needed before the policy rate hike is implemented and he does not see it will be implemented this year.
“The timing and pace of reducing asset purchases will not be intended to send a clear signal around the timing of a rate hike, for which we have prepared substantially rigorous and separate tests,” Powell said in the speech. CNBC International.
Wall Street welcomed the announcement, because tight monetary policy, which usually results in stagnating liquidity in the market, has yet to be taken. The Dow Jones index also closed up 0.7% at 35,455.8 while the S&P 500 jumped 0.9% to 4,509.37 and the Nasdaq jumped 1.2% to 15,129.50.
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Source: CNBC International- – |
So far this week, the Dow is up 0.9%, the S&P 500 is up 1.5%, and the Nasdaq is up 2.8%. As for the whole month, the three also strengthened, respectively by 1.4%, 2.6%, and 3.1%. The movement of this stock index shows that tapering this time it is not predicted to trigger market anxiety, as happened in 2013.
State Street Global Advisors Chief Investment Planner Michael Arone said yesterday’s market euphoria was more due to the fact that benchmark interest rates are still far away, and will not be implemented in the near future.
“A hike in the benchmark rate is still far, far away, and investors are happy to see that… I think Powell deserves credit for directing policy tapering, while avoiding tantrum. The market looks ready to go with the start tapering,” he was quoted as saying CNBC International.
In other words, the biggest scourge for the market is not tapering itself, but rather on the follow-up policy, namely an increase in the benchmark interest rate. This tight monetary policy will reduce the money supply, both in the economy and in the capital market.
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