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LGT Navigator: Fed minutes confirm somewhat more cautious but restrictive stance of US monetary policy

In its minutes of the last interest rate decision, the US central bank stressed that a comfortable majority had voted for another hike and that a pause in interest rates was not being discussed now. Fed representative James Bullard, meanwhile, expressed confidence that the Fed has a good chance of beating inflation this year without causing a recession. However, he said, monetary policy must remain restrictive for the time being and the pace must be increased if necessary. A positive accent was set by the latest Ifo survey, which signalled a renewed improvement in business sentiment in Germany.

Alessandro Fezzi, LGT
Reading time
5 minutes

The Federal Open Market Committee (FOMC) of the Federal Reserve (Fed) had decided on the last interest rate step of 25 basis points on 1 February with broad approval. This emerged from the minutes published yesterday evening. Only a few members of the Council had supported an increase of 50 basis points, in view of the continuing danger of inflation.

The reaction on Wall Street was subdued. The Dow Jones Industrial declined 0.26% to 33,045.09 points and the S&P 500 ended lower at 3,991.05 points (-0.16%). On the Nasdaq technology exchange, the indices closed yesterday only slightly above the previous day's close. The US dollar strengthened somewhat against the euro and the yield on ten-year US government bonds fell slightly to 3.92%.

The markets in the Asia-Pacific region trended inconsistently on Thursday. In South Korea, the central bank left its key interest rate unchanged at 3.5% after a series of rate hikes. As a result, the Kospi in Seoul rose by around 1.1%. In Japan, financial markets remained closed for a holiday. In Hong Kong, the Hang Seng Index lost 0.3% and the Hang Seng Tech Index gained just over 2% during the day, but then closed with a daily gain of around 1%. On the Chinese mainland, the Shanghai Composite and the Shenzhen Component were both down about 0.3% from the previous day's close.

Improved business climate in Germany and France

German entrepreneurs were more optimistic in February, according to the latest survey results of the Munich-based economic research institute Ifo. The highly regarded Ifo Business Climate Barometer rose for the fourth month in a row, this time from 90.1 in January to 91.1 points, which was in line with expectations. The Ifo surveys around 9,000 companies monthly on their business development and outlook.

Business sentiment also improved in France in February. The indicator of the statistics office Insee also climbed by one point to 103.

Diverting short-term inflation trends in Germany and Italy

In Germany, consumer prices rose by 8.7% in January compared to the previous year. This means that after the discontinuation of the one-off government relief for gas and district heating customers, the inflation rate was again significantly higher than in December with 8.1 and almost back to the level of November with 8.8%.

In Italy, however, the inflation rate weakened more than expected at the beginning of the year. Over the year, consumer prices rose by 10.7%. In December, the inflation rate had still been 12.3%.


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi,
Source: LGT Bank (Switzerland) Ltd.

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