The Fed could make a big change today. And no, we're not talking about interest rates

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https://www.cnn.com/2024/05/01/investing/premarket-stocks-trading/index.html



New York
CNN
—
Wednesday’s Federal Reserve policy decision will likely be pretty boring for investors — officials are widely expected to keep interest rates the same, just as they have since July 2023.

But some savvy traders are getting excited about another key decision. They think that the Fed may curtail its quantitative tightening (QT) program — that’s the selling off of its assets to decrease money supply and increase interest rates — by as much as half.

What’s happening: The Fed bought a ton of government-backed bonds between 2020 and 2022 to help support economic recovery after the pandemic-induced recession. Those purchases ended up pushing down interest rates in certain parts of the economy, like housing and auto sales.

In mid-2022, as inflation soared higher, the Fed reversed that and began unloading those bonds.

What it means: “May 1 is set to be a big day in the bond market,” Evercore ISI’s Krishna Guha and Marco Casiraghi wrote in a recent note.

If the Fed does ease up its tightening policy, “financial markets will likely see the taper of the QT program as bullish for riskier investments like stocks and bonds at the margin,” wrote Bill Adams, chief economist for Comerica Bank, in a note on Tuesday.

That’s because a taper should send bond prices higher, and interest rates lower.

The risk, wrote Bank of America analysts on Tuesday, “is skewed to the upside for stocks, in our view, especially given a potential QT taper announcement.”

Well this is interesting.