What's going on?
The US Federal Reserve (the Fed) announced late on Wednesday that it’d start slowing its bond-buying from November, finally giving investors something to sink their teeth into.
What does this mean?
The Fed’s been working hard to keep the US economy grinding along during the pandemic, not least by buying up $120 billion worth of bonds every month – lowering their yields and, in turn, borrowing costs for households and companies alike. But now that the country’s started to look a little steadier on its feet, the Fed’s decided to start winding that bond-buying program down as soon as November. The central bank said it’ll end the program altogether from the middle of next year, and then – and only then – will get to thinking about upping interest rates…
Why should I care?
For markets: The Fed gives a stay of execution.
Interest rate hikes matter because they make a company’s future earnings worth less today, which could give investors’ stocks a knock. But it’s no secret that they’re on their way: it’s just been hard to know when exactly. So now that the Fed’s said nothing will happen until at least the middle of next year, investors can relax a little. Throw in the fact that the central bank just upped its expectations for US economic growth over the next two years, and it’s no surprise US stocks rallied after the news.
The bigger picture: So much for a blip.
The Bank of England (BoE) made its own announcement on Thursday, saying inflation might stay above 4% well into next year. This, despite having maintained for a while now that this spike in prices is only temporary. The BoE is sticking to its guns, mind you: it’s still not raising rates quite yet, even if it did say it’d think about doing it in the next few months – so long as the UK’s recovery stays on track, of course.