After several months of pushing the issue to the sideliners, of much preparatory market rhetoric from the Fed, the time has come when the room for manoeuver to postpone the main issue, the future of monetary policy, has become very slim. Indeed, with the re-entry of investors into the market after the summer vacation and with the division that reigned in the last meetings of the US central bank, which adds to the evidence of an economy that maintains robust growth, countering fears of a slowdown accentuated, the subject was already in a phase that required a new clairvoyance.
And the Fed did not disappoint, last week investors learned that very soon the status quo that has prevailed in recent years will change. An extremely accommodative monetary policy that supported the appreciation of Wall Street but also economic growth, namely in an extremely challenging phase with a pandemic that forced the taking of measures unimaginable just two years ago. As a secondary effect of easy money, whether in obtaining credit or in extremely low interest rates, North American families increased their investment in the equity segment, with 29.5% of their assets in this type of assets, against 26.5% which was registered in 2019.
Therefore, most likely in November the amount of FED purchases will start to be reduced by around $15 billion each month, until it eliminates the $120 billion that the central bank is currently purchasing. All because, according to FED members, the economy has already recovered enough to start normalizing monetary policy, not least because inflation forces us to put some water in the boil of price growth. It remains to be seen how the economy will deal with less stimuli, whether monetary or fiscal, given that the investment package proposed by Joe Biden and supported by the Democrats, will not have the same impact as those approved during the most critical phase of the pandemic, where checks delivered directly to most citizens were included.
