In an article I penned yesterday I wrote, "The consensus is that no matter what US Federal Reserve Chairman Jerome Powell tells the press today (overnight Aussie time), it will impact S&P/ASX 200 Index shares." (You can find that article here.)
Well yesterday, overnight for you and me, Powell did speak to the press in a virtual conference. And indeed US share markets reacted immediately. Though the impact on the ASX 200 appears muted.
The Dow Jones Industrial Average (INDEXDJX: .DJI), for example, gained 0.6% in the 30 or so minutes following Powell's speech. It closed the day up… 0.6%.
The power of the US Fed's Powell to move share prices
Powell's words not only have the power to move individual share prices, but to impact share markets the world over.
And, as widely expected, Powell did his best to calm the growing market fears that inflation may be just over the horizon.
As Bloomberg reports, "The Fed expects that a bump in inflation this year will be short-lived. Officials saw their preferred measure of price pressures slowing to 2% next year following a spike to 2.4% in 2021, according to the projections."
To keep borrowing rates low, Powell indicated that the central bank's massive quantitative easing (QE) program will remain in place, saying:
The stance of monetary policy we have today we believe is appropriate. We think our asset purchases in their current form – which is to say across the curve, $80 billion in Treasuries, $40 billion in mortgage-backed securities, on net – we think that's the right place for our asset purchases.
The majority of the Federal Open Market Committee also reiterated their view that interest rates in the world's largest economy would remain at their current rock bottom level through 2024.
In a sign that there is growing unease about the spectre of inflation, however, that majority has narrowed, with 7 of 18 Fed officials expecting 1 or more interest rate rise in 2023, up from 5 who expressed that view previously.
As Bloomberg noted, Powell was quick to point out this is still a minority view among the committee, saying, "The strong bulk of the committee is not showing a rate increase during this forecast period."
Bloomberg economists look to agree, writing:
The Federal Reserve continues to hold the course, maintaining the glide path for both rates and asset purchases which it established last year, and does not appear to be close to altering its trajectory anytime soon.
ASX 200 snapshot
If the US Fed keeps its QE program humming along at full speed and maintains its 0.25% official interest rate through 2024, it will make it far easier for the world's other central banks, including the Reserve Bank of Australia, to do the same.
And with the wall of easy money looking set to continue, that should spell good news for ASX 200 investors.
Though slipping in intraday trade today, down 0.3% at time of writing, the ASX 200 is up 1.5% in 2021 and up 36.9% over the past 12 months.
