ASX 200 shares jump as Fed flags bond tapering

The ASX 200 is rising after the Fed flagged bond tapering.

| More on:
graph showing rising share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The S&P/ASX 200 Index (ASX: XJO) is currently up around 1% to 7,371 points as the US Federal Reserve revealed its plans for bond tapering.

What did the Federal Reserve say?

The world's most followed central bank noted that the US has made progress on vaccinations and there is strong policy support, whilst economic activity and employment have continued to strengthen.

Sectors that have been hurt most by impacts of COVID-19 have improved in recent months, though the rise in COVID-19 cases have slowed their recovery.

It was noted by the central bank that inflation is elevated, but it put that down largely to transition factors.

The Fed said that the path of the economy continues to depend on the course of the virus, though ongoing vaccinations will help reduce the impacts of the public health crisis on the economy. However, the central bank believes there are still risks to the economic outlook.

Inflation and employment targets

The Fed committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. Considering inflation has been high for some time, the Fed is going to aim for inflation to be "moderately above" 2% for some time. It expects to maintain an accommodative stance of monetary policy until these outcomes are achieved.

It's going to keep the interest rate target rate at 0% to 0.25% and expects to keep it at this level until the job market has reached "maximum employment" and inflation targets are also on track.

Reduction of bond buying

Central bank bond buying can have a supporting impact on the ASX 200.

The current bond buying situation is that the Fed has been increasing its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month. It was doing this until substantial further progress had been made toward its maximum employment and price stability goals.

If the economy keeps recovering as it is, then the Fed believes it would be warranted to slow down the pace of asset purchases.

According to reporting by the Australian Financial Review, Federal Reserve chairman Jerome Powell said the central bank could reduce asset purchases as soon as November and complete the process by the middle of 2022. Mr Powell also said:

The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate lift-off.

What has the ASX 200 done?

As mentioned, the ASX 200 is up around 1%, but within that there are different movers.

Looking at some of the biggest businesses, the Commonwealth Bank of Australia (ASX: CBA) share price is up 1.3%, the Fortescue Metals Group Limited (ASX: FMG) share price has increased 2.5%, the Macquarie Group Ltd (ASX: MQG) share price is up 2% and the Afterpay Ltd (ASX: APT) share price has risen over 4%.

Looking at the overall ASX 200, there are a few other ASX shares that have performed even stronger. The Bapcor Ltd (ASX: BAP) share price is up more than 6%, the AGL Energy Ltd (ASX: AGL) share price is up over 5% and the Corporate Travel Management Ltd (ASX: CTD) share price is currently up 4.6%.

Motley Fool contributor Tristan Harrison owns shares of Fortescue Metals Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO, Bapcor, Corporate Travel Management Limited, and Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Economy

A man looking at his laptop and thinking.
Share Market News

What ASX 200 investors just learned about inflation and interest rates

Here’s what the ABS just reported.

Read more »

Woman and man calculating a dividend yield.
Share Market News

What ASX 200 investors just learned from the RBA's interest rate minutes

Will ASX 200 Index investors get interest rate relief before Christmas?

Read more »

Man looking at his grocery receipt, symbolising inflation.
Share Market News

What the latest US inflation print means for ASX 200 investors

The ASX 200 is likely to benefit if the US Fed cuts interest rates again in December. But will it?

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
Economy

Consumer confidence is rising. What does it mean for ASX shares?

Consumers gonna' consume.

Read more »

A smiling woman dressed in a raincoat raise her arms as the rain comes down.
Economy

History says ASX shares will do this once interest rate cuts begin

Like sunshine on a rainy day, the data shows mixed outcomes.

Read more »

Four investors stand in a line holding cash fanned in their hands with thoughtful looks on their faces.
Economy

Up 20% this year. Does the S&P 500 Index have more in the tank for 2024?

Will US stocks hold up after the election?

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
Share Market News

ASX 200 takes the latest RBA interest rate verdict in stride

The ASX 200 looks to have shaken off today’s RBA interest rate call.

Read more »

Cubes with tax written on them on top of Australian dollar notes.
Tax

How much tax do your ASX shares pay? Why it might matter

Taxes. One of the two unavoidables in life.

Read more »