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LGT Navigator: Fed monetary policy decision in focus

March 17, 2021

The focus this evening will be on the Federal Reserve's decision on the direction of its monetary policy. The Fed is walking a tightrope between ongoing crisis management and rising inflation expectations in view of the ultra-loose monetary policy and the massive fiscal stimulus packages.

Fed monetary policy decision in focus

Tonight’s monetary policy decision stands against the background of the recent rise in yields on US Treasury markets. It is assumed that the Fed will keep key interest rates unchanged at record lows near zero percent this evening at 19:00 (CET). However, the appearance of Fed Chairman Jerome Powell at the subsequent press conference at 19:30 (CET) is anticipated with excitement. With the Covid-19 vaccination campaign now progressing rapidly in the US and the USD 1.9 trillion corona aid package, the central bank could well give a more positive outlook on the economy, but in doing so also fuel the recent rise in inflation expectations.

In New York yesterday, the technology indices have extended recent gains, but the momentum at the close of trading eased somewhat. The Nasdaq 100 closed +0.53% higher at 13'152.28 points. To the contrary, the Dow Jones Industrial and the S&P 500 declined. The Dow ended Tuesday with a daily loss of -0.39% at 32'825.95 points and the broad S&P 500 gave up -0.16% to 3'962.71 points but traded only close to the record high of 3'981 points reached yesterday. On the bond market, the yield of ten-year US government bonds is still quoted around 1.6%. Here, too, investors are waiting for today's directional decision by the Fed.

Volatile sales development at US retailers

In the US, retail sales in February slumped -3% from the previous month, while analysts had expected a consensus decline of only -0.5%. However, this contrasts with significantly upwardly revised data in the previous month. Thus, according to data from the Commerce Department, sales in January rose much more strongly than initially, namely by +7.6% (first estimate +5.3%).

ECB chief economist Lane thinks yield curve control not opportune at present

Philip Lane, chief economist of the European Central Bank (ECB), considers yield curve control by the central bank to be unnecessary and emphasized that the ECB will be guided by the inflation outlook in securing favorable financing conditions. At the same time, however, Lane brings up the possibility of an average inflation target for the ECB. In the Financial Times, Lane emphasized that while there is a strong logic to the strategy introduced by the Fed, there are other promising strategies for anchoring inflation expectations. It should also be borne in mind, he said, that the debate surrounding yield curve control relates to a horizon of two to three years.

Germany achieves 2020 climate targets “thanks to” corona

Germany has managed to meet its 2020 climate targets after all, but mainly because of the partial standstill of the economy and public life in the corona pandemic. Data released yesterday by the Federal Environment Agency showed that Europe's largest economy released 70 million tons fewer greenhouse gases last year than in 2019, a drop of -8.7%. In a ten-year comparison, emissions fell by just under -41%, slightly exceeding the target of -40%. According to the ministry, about one-third of the decline was due to area-wide lockdowns. The anticipated strong recovery of the global economy from the corona crisis, suggests that a renewed rapid increase in emissions can be expected and a transformation to a more sustainable economy will therefore be essential for a sustained reduction.

 

Economic Indicators March 17

MEZ Country Indicator Last
11:00 EZ Consumer Prices (February, m/m) +0.2%
11:00 EZ Consumer Prices (February, y/y) +0.9%
11:00 EZ Core Consumer Prices (February, y/y) +1.1%
13:30 US Building Permits (February, m/m) +10.7%
13:30 US Housing Starts (February, m/m) -6.0%
19:00 US FOMC monetary policy announcement
19:30 US Fed Governor Powell press conference

Earnings Calendr March 17

Country Corporate Period
GE BMW Annual Figures

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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