At 2:00 Beijing time on September 23rd, the Federal Reserve stabilized interest rates without giving a clear timetable for when to start shrinking QE, saying only that action would begin "soon". The market interpreted this as dovish, the US index plunged and gold soared.

Then the painting took a turn, and Federal Reserve Chairman Powell turned to an eagle at a regular news conference, saying that if the economy continues to make progress, a reduction in bond purchases may soon be guaranteed. There will be a gradual reduction in bond purchases, ending around mid-2022. Mr Powell also said the wording in the statement meant that the reduction in bond purchases could be met at the next meeting at the earliest.

Analyst Sebastian Boyd said Powell said he envisions phasing out debt reduction by the middle of next year. This does not sound "gradual", considering that the contraction could begin as early as November, and it is also a clear indication that the Fed has advanced the date of its start. Unusually, Powell's tone was tougher and clearer than the FOMC statement.

After Powell's speech, the US index reversed its decline and reached a new high of 93.52 after erasing the decline after the Fed's interest rate resolution. Spot gold turned downwards, plunging $17 to as low as $1764.30 an ounce. Yields on 10-year Treasuries fluctuated sharply by about 3 basis points.

Powell's speech focuses on carding.

monetary policy

It may be appropriate to end the gradual reduction of QE around mid-2022, and most FOMC members support the timing and speed of debt reduction. If the economy makes progress as expected, the Fed is likely to act at its next meeting. At this stage, the Fed is focused on when to start downsizing QE, and has not yet made a decision on a longer-term solution to the balance sheet. Reiterate that it will not raise interest rates before ending the subtractive QE.

Economy, Employment and inflation

The Fed's measures will ensure that monetary policy supports the economy until the recovery is complete. Economic growth is likely to continue at a strong pace for the rest of the year. The economic outlook is still at risk, and the Delta strain has slowed the economic recovery. Many members of the Federal Open Market Committee say substantial progress has been made on the employment issue.

Inflation is rising and is likely to continue for several months before easing; indicators of long-term inflation expectations remain in line with long-term inflation targets; if inflation is still higher than expected, the Fed will respond; substantial progress has been made on inflation. The Fed's inflation forecast shows that inflation is "very modest" above its 2 per cent target.

Debt ceiling

It is important to raise the debt ceiling in a timely manner, and failure to do so could cause serious damage to the economy. We all agree that the United States should not default and that the Fed cannot fully protect the market or the economy in the event of a default.

Summary of market comments on Powell's speech

John Authers, senior editor of ① Bloomberg: the most plausible interpretation of Powell's speech is that the Fed will shrink its debt at a rate of $15 billion per meeting starting in November. This will allow the work to be completed in June next year, a more radical way to reduce debt than most people expected.

② financial website Forexlive analyst Adam Button: Fed Chairman Powell said "it may be appropriate to phase out bond purchases around mid-2022." That means the Fed will start shrinking by $20 billion around December. This is the strongest guidance we have received so far, and it is a hawkish surprise, and Powell will provide some clear guidance on this point before it is necessary.

Vincent Cignarella, foreign exchange strategist at ③: the Federal Open Market Committee (FOMC)'s decision on when to raise interest rates is divided because the two members have advanced their expectations for a rate hike in 2023 to 2022, and the overall chances of a rate hike in 2023 have risen. Powell also said the tapering of bond purchases would end around mid-2022. The last time they reduced their debt, it was completed within a year. According to what he now calls it, this time it was completed in six months, and he is indeed a hawk.

④ analyst Jersey: Fed Chairman Powell mentioned that the interest rate hike test is different from the debt contraction test, which suggests that if Powell is re-appointed as Fed chairman, he will maintain a dovish tone among some hawkish regional Fed chairmen.