The Tone of FED Monetary Policy April 2021

28 Apr 2021 Written by: Redaksi OCBC NISP

This week, the central bank of the United States (US) The Federal Reserve (Fed) will hold a meeting to discuss monetary policy, particularly regarding interest rates.

The Fed's decision, which may affect the monetary direction of global central banks has become attention accorded much attention by the capital market.

Analysts predict that the Fed will keep interest rates on the Federal Open Market Committee (FOMC) this week. Since March 2020, the Fed has set the Fed funds rate at 0% -0.25%.

Apart from decisions related to interest rates, investors will also pay attention to the speech of the Fed Chair Jerome Powel, which will lead investors to see the direction of monetary policy from the country's central bank with the largest economy.

Investors consider that the current Quantitative Easing (QE) policy has a good effect. The central bank Fed is still buying as much as USD 120 billion per month and will continue to maintain this policy for some time to come.

However, some analysts believe, given the potential for economic recovery, the Fed's central bank may decide to reduce its current purchases or "taper" before the end of 2021.

This view is faster than previous estimates, namely the new plan will reduce the asset purchase program at the end of the year or after 2021. Of the 49 analysts surveyed by Bloomberg over the past week, 45% said that the Fed meeting this time will announce a "taper" in the quarter. four years 2021, while 14% of this will be done in the previous period or the third quarter. In general, the survey results show that the Fed will be more "hawkish" at this meeting than last March, with a more real view, if the Fed will start tapering in 2022.

Investment Strategy:
With a more optimistic view of the US economic recovery, it is expected to promote global economic recovery. This recovery will increase investors' risk appetite for riskier assets such as stock instruments. However, with the expectation that the Fed's benchmark interest rate will be maintained at a low level for the next few years, it will still make debt instruments an attractive option.

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