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LGT Navigator: Governor Powell still sees Fed policy well positioned

August 30, 2021

“Right now, I think our policy is well-positioned, but we are always prepared to make adjustments,” Federal Reserve Chairman Jerome Powell said in his speech at the virtual Jackson Hole Federal Reserve Symposium. The Fed Chairman's highly anticipated remarks indicated that the central bank would continue to exercise patience in the face of uncertainties in the pandemic development of what it sees as only temporary excess inflationary pressures.

Governor Powell still sees Fed policy well positioned

In the equity markets, the latest assessments by Federal Reserve Chairman Jerome Powell at the Jackson Hole meeting on Friday were received positively and the yield on 10-year US government bonds held at 1.30%, after the benchmark had risen to nearly 1.36% during the week. Stock market participants were relieved that, according to Powell's statements, no imminent reduction in monetary stimulus is expected and the Fed still expects inflation to overshoot only temporarily. The Dow Jones Industrial gained +0.69% to 35'455.80 points before the weekend, gaining nearly one percent for the week. The S&P 500 exited Friday's trading +0.88% higher at 4'509.37 points and on the Nasdaq technology exchange, the indices gained about one percent. In Asia, most stock indices started the new week on a positive note after Powell's statements and Europe's stock markets can also expect a friendly start to the week.

Fed Chairman Powell: hasty action would be harmful

According to Fed Chairman Jerome Powell, the US economy continues to make progress, but the outlook is highly uncertain due to the coronavirus delta variant. In addition, Powell remains of the opinion that the sharp rise in inflationary pressures, while worrisome, is likely to be transitory. The Fed Chairman sees the reasons for this mainly in the bottlenecks in the supply chains, which are likely to dissolve, to globalization, which acts as an anchor for prices. The Fed should not chase temporary inflationary pressures and potentially slow job growth in the process, Powell said at the Jackson Hole central banking conference. Therefore, he said, the central bank will remain patient and continue to pursue its goal of full employment. “When a central bank tightens monetary policy in response to factors that turn out to be transitory, it unnecessarily slows hiring and other economic activity and pushes inflation lower than desired,” he said. At this time, when there is still considerable slack in the labor market and the pandemic continues, such a mistake could be particularly damaging. Thus, for the time being, Powell seems to be in no hurry to reduce the monetary stimulus in the form of the monthly asset purchases of USD 120 billion. Accordingly, a corresponding go-ahead for tapering is not to be expected at the Fed's upcoming interest rate decision on September 22.

Delta variant depresses consumer sentiment in the US

The mood of the American consumer deteriorated significantly in August. This is according to the definitive results of the monthly survey by the University of Michigan. The consumer confidence barometer based on it fell from 81.2 points in July to 70.3 points. The index for expectations dropped from 79.0 to 65.1 and the indicator for the assessment of the current situation from 85.5 to 78.5 points. The background to the deterioration in sentiment is the spread of the delta variant, higher consumer prices and the still tense situation on the labor market.

German import prices show strongest increase in 40 years

In Germany, import prices rose by +15% in July compared with the same period a year earlier, the sharpest increase since September 1981. On a monthly basis, import prices also increased by a stronger than expected +2.2%. Significant price increases were recorded above all for intermediate goods such as iron ore, wood, pig iron and plastics.

 

Economic Indicators August 30

MEZ Country Indicator Last period
00:00 UK Bank Holiday
09:00 SP Consumer Prices (August, y/y) +2.9%
10:00 EZ Economic Sentiment (August) 119.0
10:00 EZ Business Climate (August) 1.9
10:00 EZ Consumer Sentiment (August) -5.3
14:00 GE Consumer Prices (August, y/y) +3.1%
16:00 US Pending Home Sales (July, m/m) -1.9%

 

Earnings Calender August 30

Country Company Period
GE DZ Bank  H1
USA Zoom Video Communications Q2

 

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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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