Stocks have reacted positively to the decision by the Federal Reserve to taper their asset purchases in a hawkish turn of events on Wednesday.
The Federal Reserve said they planned to reduce their monthly asset purchases by $30 billion per month, double the previously expected taper pace of $15 billion.
The Federal Reserve also signalled there would be three rate hikes next year to help bring soaring inflation under control.
US rates are currently at 0.25% and the market now expects this to rise to 1% by the end of next year.
Global equites rallied on the clear guidance provided by the Fed and the promise they would act to bring record inflation under control.
“Markets certainly seem to have a spring in their step, with the major indices across Europe, Asia and the US all pushing forward,” says Russ Mould, investment director at AJ Bell.
“The US Federal Reserve’s monetary policy update last night has gone down well with the markets.”
“The prospect of three US interest rate hikes in 2022 would suggest the central bank has a clear plan to not let inflation get out of control. Equally, it isn’t being too aggressive to trip up the economy. This sense of balance is exactly what investors want, and an upbeat tone from the Fed certainly seems to have rubbed off on markets.
“The S&P 500 closed 1.6% higher last night, and Japan’s Nikkei followed suit with a 2% advance on Thursday. In mainland Europe, markets enjoyed gains of between 1.2% and 1.7%, while in the UK the FTSE 100 advanced 1.1%.”
News from the Federal Reserve come sin what will be a busy week for central banks – Thursday will see the Bank of England release their interest rate decision amidst soaring inflation and rising coronavirus cases.