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LGT Navigator: Fed monetary policy decision in focus

June 15, 2022

The Federal Reserve (Fed) will raise key interest rates once again today at 8:00 p.m. (CET). The question is how large the interest rate step will be. Financial markets are expecting a tightening of the Fed Funds Rate by 75 basis points in view of the recent rise in inflation in the US to +8.6%. In the wake of the Fed, the Swiss National Bank's (SNB) quarterly monetary policy assessment will also take center stage tomorrow.

Fed monetary policy decision in focus

If Fed Chairman Jerome Powell does indeed announce a rate hike of three-quarters of a percentage point today, it would be the biggest rate hike since November 1994. In any case, the renewed increase in inflationary pressure in May – consumer price inflation in the United States reached its highest level since 1981 at 8.6% – opened the door for a strong Fed response. A stronger and faster increase in key interest rates also raises the risk of a recession, which has been unsettling the investment community for some time.

On Wall Street, the nervousness ahead of today's interest rate decision by the Fed remains palpable. The Dow Jones Industrial could not recover from recent losses and fell again by -0.5% to 30'364.83 points. In the last four days, the Dow lost almost -8%. The S&P 500 closed at 3'735.48 points, -0.38% lower than the previous day. Meanwhile, the yield of ten-year US government bonds climbed to 3.47%, the highest level in eleven years. Profiteer from the prospect of rapidly rising interest rates is the US dollar, which pushes the euro to just under 1.04.

The Asian markets trended inconsistently on Tuesday. Driven by positive news from China with figures from the industry and retail trade, which were slightly above market expectations, the Shanghai Composite gains almost two percent and the Hang Seng in Hong Kong gains around +1.6%. In Tokyo, however, the Nikkei 225 trades around -1% lower. 

US producer price inflation remains at a high level

In the United States, prices at producer level rose by +10.8% in May compared with the same period a year ago. Although this represents a minimal slowdown in price inflation – the rate of increase in April was +10.9% – it remains at a high level. Excluding the driving energy prices, the core rate was +8.3%. Price developments at producer level are partially fed into consumer prices with a slight time lag.

Inflation rate in Germany close to 50-year high

With an inflation rate of +7.9%, German consumer prices in May, driven by price increases for energy and food, rose more strongly on an annual basis than at any time since the turn of 1973/74. Compared with the previous month, the cost of living in Europe's largest economy also increased sharply by +0.9%.

Financial experts somewhat more confident according to ZEW

According to the Mannheim-based economic research institute ZEW, economic expectations for Germany brightened slightly in June. The expectations indicator improved at a low level from minus 34.3 to minus 28.0 points (consensus -26.8). Despite the brightening, however, the mood was still dominated by numerous risk factors such as inflation, the change of course in monetary policy, the Ukraine war, and the conflict with Russia, as well as the uncertain pandemic situation in China, the ZEW commented.

Economic Indicators June 15

MEZ Country Indicator Last period
08:00 SZ Seco Economic Forecast
08:00 GE Wholesale Prices (May, y/y) +23.8%
08:45 FR Consumer Prices (May, y/y) +5.8%
11:00 EZ Industrial Production (April, m/m) -1.8%
14:30 US Retail Sales (May, m/m) +0.9%
14.30 US Import Prices (May, m/m) +1.1%
14:30 US NY Fed Empire State Manufacturing (June) -11.6
16:00 US NAHB Real Estate Index (June) 68.0
18:20 EZ ECB President Lagarde speaks
20:00 US FOMC Monetary Policy announcement 1.00%
20:30 US Fed Press Conference


Earnings Calender June 15

Country Company Period
SZ Clariant Q1
SWE H&M Q2 Sales


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