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LGT Navigator: Eagerly awaited US Federal Reserve decision

December 15, 2021

The US Federal Reserve (Fed) will announce its decision on the direction of monetary policy this evening and explain its latest economic forecasts at the following press conference. The Fed is increasingly under pressure to act due to the recent significant increase in inflationary pressures, and Fed Chairman Powell must take into account the fragile inflation outlook on the one hand, and uncertainties regarding further pandemic developments or the impact of global supply chain problems on the other.

Eagerly awaited US Federal Reserve decision

In the run-up to the landmark decision of the Federal Reserve today at 20:00 (CET), the Dow Jones Industrial declined on Tuesday by -0.3% to 35'544.18 points and the S&P 500 fell back by -0.75% to 4'634.09 points. The losses were even heavier in the interest rate-sensitive technology stocks. On the Nasdaq, the indices fell in the meantime by more than -2% and closed around -1% lower than the previous day. The background is the expectation that the Fed will accelerate the already started withdrawal (tapering) of quantitative measures (QE) in view of the strong inflationary pressure and thus could also initiate a faster turnaround in interest rates. This would hit the growth-oriented technology sector, which is dependent on favorable financing conditions, particularly hard. A similar picture emerged on Asia's stock markets on Wednesday morning, and equity markets in Europe are also likely to be characterized by caution ahead of the Fed's decision.

The Fed's updated forecasts for economic, inflation and interest rate developments could signal an earlier and stronger increase in the key interest rate, which would mean that the first interest rate steps could be expected as early as mid-2022.

US producer prices point to continued surge in inflation

In the US, prices at producer level rose stonger than expected in November. On an annual basis, producer prices increased by +9.6%, registering the highest rate of increase since the data series began in 2010. Compared with the previous month, the price level rose by +0.8% (consensus +0.5%). Also worth noting is the increase in the core rate, i.e. excluding energy prices, which amounted to +6.9% on an annual basis and +0.7% on a monthly basis (consensus +0.4%). Producer prices are partially incorporated into consumer prices with a lag.

Recovery of the German economy postponed to 2023 according to Ifo

The Munich-based economic research institute Ifo has revised its economic forecasts downward in view of the ongoing supply bottlenecks and the fourth corona wave. According to Ifo's assessment, the German economy will grow by an average of +3.7% in 2022. The forecast is thus significantly lower than the +5.1% predicted in the fall. On the other hand, the economic recovery should simply be postponed for the reasons mentioned, and accordingly stronger growth of +2.9% (previously +1.5%) is now forecast for 2023. The Ifo left its forecast for the current year at +2.5%. Ifo President Clemens Fuest stressed that the measures against the pandemic would not burden the economy, but on the contrary protect it because they would shorten the crisis and make it safer to consume. Abandoning the rules would make the economic situation even worse.

Regarding the inflation trend, Ifo expects an inflation rate of +3.1% in the current year and an increase to +3.3% next year. However, the economic experts expect inflation to fall as early as 2022 and then to return to a much more moderate rate of +1.8% in 2023.

Economic Indicators December 15

MEZ Country Indicator Last period
08:00 UK Consumer Prices (November, y/y) +4.2%
08:00 UK Producer Prices (November, y/y) +8.0%
09:00 ESP Consumer Prices (November, y/y) +5.6%
10:00 IT Consumer Prices (November, y/y) +4.0%
14:30 US Retail Sales (November, m/m) +1.7%
14:30 US NY Fed Empire State Manufacturing (December) +30.9
20:00 US FOMC monetary policy announcement 0.0-0.25%
20:00 US Fed Economic and Monetary Forecasts
20:30 US Fed Press Conference

 

Earnings Calender December 15

Country Company Period
SZ Roche
GE Metro Year
IT Generali Investor Day
SWE H&M  Q4 Sales
DK Vestas Capital Markets Day

 

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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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