Canadian Manufacturing

U.S. decision to taper off stimulus boosts North American stock markets

The move was viewed as neither hawkish nor dovish even as the Fed continued to insist that inflation is transitory but more persistent than previously thought.

November 4, 2021  The Canadian Press

The U.S. Federal Reserve gave North American stock markets a boost as it announced the economy was strong enough to begin tapering monetary stimulus later this month.

“Initially there was very little reaction and then it pretty much turned positive on the bond and the stock market,” said Michael Currie, vice-president and investment adviser at TD Wealth.

The central bank said in a unanimous decision that it would pare its US$120 billion per month bond purchases by US$15 billion a month. The reduction would be completed by mid 2022 before it considers raising interest rates. However, the pace could be accelerated if needed.

The cut in stimulus measures that were added at the start of the pandemic was expected by markets because the U.S. economy is gaining strength.

Advertisement

The move was viewed as neither hawkish nor dovish even as the Fed continued to insist that inflation is transitory but more persistent than previously thought.

That echoes the Bank of Canada’s position on inflation.

“Even though inflation’s been dragging on at a 30 year high for a long time now and all of the supply chain issues and tight consumer demand and wages going up, (the Fed) refused to take the word transitory out of the inflation discussion,” Currie said in an interview.

“So people who have been looking for rate hikes, perhaps towards the second half of the year next year, might be taking some good news from this report today.”

The U.S. dollar moved higher, with the loonie trading for 80.53 cents US compared with 80.62 cents US on Nov. 2.

The S&P/TSX composite index closed up 95.09 points to 21,265.10 after hitting an intraday high that was 26 points off its recent record high.

U.S. stock markets all set new records despite some early softness.