The Federal Reserve signaled on Wednesday (15 December) that its run of ultra-easy policy since the start of the Covid pandemic is coming to an end, making aggressive policy moves in response to rising inflation. For starters, the Fed announced that it will reduce its monthly bond purchases more quickly, to reduce money supply. The Fed is still concerned about inflation and intends to raise interest rates in 2022 while slowing the pace of bond purchases.
Beginning in January, the Fed will buy $60 billion of bonds per month, half the amount it was buying prior to the November and $30 billion less than it was buying in December. The Fed began injecting by $15 billion per month in November, doubled it in December, and plans to accelerate the reduction even further in 2022. After that is completed, the central bank expects to begin raising interest rates, which were held steady at this week’s meeting.
Before the Fed news, the market indices were falling earlier on Wednesday. At day end after the news, the NASDAQ Composite Index increased by 2.2%, the S&P 500 ended 1.6% higher, and the Dow added about 1.1%. What the Fed said on Wednesday, however, appears to have alleviated some of the earlier fears that interest rate may be raised.
Tesla stock (TSLA) closed nearly 2% higher at just under $976 per share. There were other indications of Fed relief. Lucid Group (LCID), set to join NASDAQ 100 index, ended the day 0.15% down. Rivian Automotive (RIVN) shares were down 5.5% earlier in the day, but ended up down less than 2%.
Apart from the Fed and Inflation, other factors are in play for EV stocks. Concerns about delisting in the United States loom over Chinese EV firms that list American depositary receipts, and the pain may spread to the rest of the sector. NIO (NIO) ADRs fell to a new 52-week low on Wednesday, after falling more than 8% earlier in the day. NIO ADRs fell 4.7%, while XPeng (XPEV) and Li Auto (LI) ADRs fell 2.9% and 2%, respectively.