Forex traders were disappointed with Powell's speech. However, their reaction was not so negative to have a big impact on quotes. The US stock market continued to grow. The US currency declined only slightly against its main competitors - the euro and the pound sterling. The key US stock indexes, the NASDAQ Composite and the S&P 500, reach new highs almost every day. The Dow Jones is trading as close as possible to its all-time highs. Thus, my forecast turned out to be correct. I have repeatedly said that as long as the Fed injects money into the economy, the stock market will extend gains. This is due to the fact that there is more and more money in the economy and its surpluses go to markets, including the stock market. Thus, until the Fed begins to taper the QE program, the stock market will continue to inflate like a bubble. Besides, many economists point out that the bubble in the stock market is growing as the economy and companies are not expanding at the same pace as the capitalization of many companies and US stock indices are rising. So, the bubble may sooner or later burst. However, it will definitely not happen until Powell announces the reduction of QE.
The next FOMC meeting is scheduled for September 22. The regulator is widely expected to announce the tapering of the bond-buying program. Thus, traders need to wait for this statement for at least 3 weeks. However, from my point of view, it is too risky to have high expectations. Just a month ago, the chances of such a statement were very high. Some FOMC members openly said that they were ready to support the reduction of QE at the following meeting. However, a new wave of coronavirus began and policymakers were extremely worried about the worsening epidemiological situation. There were even talks about a new lockdown. Therefore, during his last speech, Powell noted these risks and said that the Fed would closely monitor inflation and the pace of labor market recovery. Apparently, the regulator will wait for the next reports on inflation and the labor market to assess the impact of the new wave of the pandemic on these indicators. The first report on the labor market will be released today, which is ADP Employment Change. However, market participants will focus their full attention on the NonFarm Payrolls report, which is on tap on Friday. During two consecutive months, the economy has added almost 1 million new jobs. This is hardly surprising that investors are anticipating the tapering of the bond-buying program. The August report may show weaker results in comparison with ones published in July and June. The Fed is also going to wait for the inflation report, which will be published in mid-September.
