Fed "Possibility of Asset Purchase Reduction"... Is the Risk Asset Party Over?

FOMC Meeting Minutes Released... First Indication Since COVID-19
"Policy Adjustment Discussion When Strong Economic Recovery Occurs"
Risk Signals of Cryptocurrency, Stock Market, and Commodity Collapse

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. Federal Reserve (Fed) hinted at the possibility of tapering asset purchases for the first time since the COVID-19 pandemic. Although it added the caveat of a strong economic recovery, this was the first indication of potential monetary policy normalization, and with cryptocurrencies, stock markets, and commodity prices all plummeting simultaneously, there are expectations that the risk asset party may be coming to an end.

On the 19th (local time), the minutes of last month's Federal Open Market Committee (FOMC) meeting released by the Fed stated, "Some participants expressed the view that if the economy continues to make rapid progress toward the Committee's goals, it may be appropriate at some future meeting to begin discussing plans to adjust the pace of asset purchases."

U.S. media outlets such as CNBC reported that the Fed suggested the possibility of modifying monetary policy for the first time. Although Fed Chair Jerome Powell mentioned that tapering asset purchases was premature, it was confirmed that within the Fed there was a growing consensus that monetary policy normalization should begin as the economy recovers.

Since March last year, following the COVID-19 outbreak, the Fed has lowered the benchmark interest rate to near zero (0.00?0.25%) and has been purchasing U.S. Treasury securities and mortgage-backed securities (MBS) worth $120 billion monthly.

On this day, the stock and commodity markets struggled due to the Fed's warning combined with the sharp drop in cryptocurrencies. Bitcoin plunged from the $38,000 range in the morning to $30,000 in an instant. After Tesla CEO Elon Musk urged, "Let's not sell off," Bitcoin recovered to the $40,000 level but is currently falling again to around $35,000.

The New York stock market experienced panic as the Dow Jones and Nasdaq indices fell as much as 1.7% intraday due to the Bitcoin crash. Commodities also declined across the board. Copper prices, which had been hitting record highs, corrected by 4%, and West Texas Intermediate (WTI) crude oil dropped 5% intraday.

Peter Boockvar, Chief Investment Officer at Bleakley Advisory Group, explained, "Considering that Bitcoin is an indicator of speculation and risk appetite, now is the time to avoid risk."

This content was produced with the assistance of AI translation services.