According to Fed Chairman Jerome Powell, the US economy no longer needs support on the same scale as during the corona crisis, and the recent significant rise in inflation justifies a faster exit from the current bond-buying program. In November, the inflation rate in the US reached +6.8%, the highest value since 1982! As a result, the Fed decided to double the reduction of bond purchases to USD 30 billion per month, which means that from January the Fed will still buy bonds in the volume of USD 60 billion per month and the program will thus already expire in March 2022. Meanwhile, the key interest rate remains unchanged at 0.0-0.25%, but according to its current projections, the US central bank is now looking at a total of at least three rate hikes of 25 basis points each next year. Another three interest rate steps could follow in 2023.
In its new economic forecasts presented yesterday, the Fed assumes that inflation will average +2.6% next year. In September, the forecast was still +2.2%. At the same time, the central bank expects slightly stronger economic growth of +4.0% (previously +3.8%) and a decline in the unemployment rate to 3.5%, which means that the goal of full employment will almost be reached again.
On Wall Street, the stock indices reacted surprisingly positively. The Dow Jones Industrial rose by about +1% and the broad S&P 500 even gained about +1.5%. The interest rate-sensitive technology exchange Nasdaq went up by about +2%. The yield on ten-year US Treasuries remained virtually unchanged at 1.45%. The more restrictive monetary policy on the part of the Fed thus appears to be well priced in and offers investors better visibility in a positive sense. In addition, the economic data published yesterday from the US were quite solid overall. For example, although the retail sector reported a lower-than-expected sales increase in November of +0.3% (consensus +0.8%), sales in the month before were strong at +1.8% (first report +1.4%). Furthermore, the New York Fed's Empire State indicator showed an improvement in the economic region's business climate, rising from 30.9 to 31.9 points. Economists had forecast a decline to 25.9 points.
The European Central Bank's assessment is also eagerly awaited today. Particularly regarding the inflation outlook, a divergent opinion has recently emerged at the top of the central bank. So, will the ECB signal an earlier than previously anticipated turnaround in monetary policy or stick to the previous assumption of a ”temporarily” escalating inflation? The press conference of ECB President Christine Lagarde, scheduled for 2:30 p.m., will provide information.
In France, meanwhile, the inflation rate climbed in November to +3.4% from +3.2% in the previous month. In addition to energy prices, prices for services also increased. In Spain, the annual rate of consumer price inflation reached +5.5% in November (previous month: +5.4%). Energy, food, and services were more expensive than a year ago, particularly in the hotel and catering sector.
The British central bank could already counter the continuing inflationary pressure by tightening monetary policy. The rapid rise in inflation in the UK is putting the central bank under increasing pressure to act. The British inflation rate rose from +4.2% in October to +5.1% in November, its highest level in ten years. Analysts had expected a current inflation rate of +4.8%. The price surge is mainly driven by transport costs due to higher fuel prices and higher prices for housing and services.
|08:45||FR||Economic Survey (December)||+109.0|
|09:15||FR||IHS Markit PMI Composite (December)||56.1|
|09:30||SZ||SNB monetary policy announcement||-0.75%|
|09:30||GE||IHS Markit PMI Composite (December)||52.2|
|10:00||EZ||IHS Markit PMI Composite (December)||55.4|
|13:00||UK||Bank of England monetary policy ânnouncement||+0.1%|
|13:45||EZ||ECB monetary policy announcement||0.0-0.25%|
|14:30||US||Philly Fed Manufacturing Indicator (December)||+28.5|
|14:30||US||Housing Starts (November, m/m)||-0.7%|
|14:30||US||Building Permits (November, m/m)||+4.2%|
|15:15||US||Industrial Production (November, m/m)||+1.6%|
|15:45||US||IHS Markit PMI Composite (December)||57.2|
|SZ||Straumann||Capital Markets Day|
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Source: LGT Bank (Switzerland) Ltd.
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