Fed Chairman Jerome Powell made it clear once again that the massive monetary support for the economy due to the pandemic must now come to an end and that monetary policy must counter high inflation. The Federal Reserve's Monetary Policy Council (FOMC) concludes that the economic recovery and the labor market now warrant a tighter stance. When the bond-buying program expires in March, the Fed is likely to initiate the turnaround in interest rates with a first rate move of at least 25 basis points on the regular rate decision on March 16. The Fed Chairman did not rule out the possibility that key interest rates could rise even more than currently anticipated. According to Powell, there is a possibility that an interest rate step could follow at each regular FOMC meeting this year – a total of seven interest rate decisions are due in 2022. The capital markets are currently expecting "only" four interest rate hikes by a total of one percentage point. In the further course of normalization, the central bank balance sheet is then also to be reduced. Since the term of the purchased bonds is relatively short, the reduction of the balance sheet total will take place quickly, according to Powell.
On Wall Street, stock indices reacted to Powell's statements in the last hour of trading with declines. After initial gains of around one and a half percent, the Dow Jones and the broad S&P 500 closed in the red shortly before the close of trading, albeit only moderately. On the Nasdaq technology exchange, the indices were able to stay just above water thanks to a good quarterly result from Microsoft or Intel. On the bond market, the yield on ten-year US government bonds reached 1.86% and two-year US Treasuries rose to 1.16%. The US dollar strengthened against the euro. With great excitement today, especially the quarterly figures from Apple.
The Canadian central bank left its key interest rate unchanged at +0.25% despite high inflation. Most of the market had expected this. On the other hand, the Bank of Canada held out the prospect of an interest rate hike at its next meeting on March 2 – similar to the US central bank.
The minutes of the Bank of Japan's latest monetary policy decision showed that some council members expect consumer inflation to accelerate briefly toward the central bank's two percent target. The inflation rate could temporarily reach a level of around 1.5% in the first half of the year. However, whether this momentum is sustainable enough to bring inflation stably closer to the central bank's two percent target would depend on wage and inflation expectations. Most of the top committee stressed the need to maintain ultra-loose monetary policy to support the fragile economy. On the January 18 interest rate decision, the central bank raised its inflation forecast slightly, but said there was no rush to adjust the ultra-loose monetary policy as inflation was still far from its target.
The German government in Berlin has lowered its growth forecast for the current year. The annual economic report now projects GDP growth of +3.6% in 2022 compared with +4.1% in the fall forecast. In the first quarter, economic performance is still expected to be impacted by the pandemic and restrictions, especially in services. Over the year, however, the economic recovery should accelerate visibly, said Economics Minister Robert Habeck.
|08:00||GE||GfK Consumer Climate (February)||-6.8|
|10:00||AUT||PMI Manufacturing (January)||58.7|
|14:30||US||GDP Q4 (annualized, q/q)||+2.3%|
|14:30||US||Initial Jobless Claims (weekly)||286,000|
|14:30||US||Durable Goods Orders (December, m/m)||+2.6%|
|16:00||US||Pending Home Sales (December, m/m)||-2.2%|
|UK||Anglo American||Q4 Sales|
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Source: LGT Bank (Switzerland) Ltd.
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