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The US Federal Reserve could finalize its stimulus package and hike rates earlier than expected as inflation hovers at a 30-year high and the labor market improves.
That is shown by the minutes of the last meeting of the Federal Reserve, which were published yesterday evening some With US inflation hitting 6.2% last month, policymakers are moving towards ending their bond purchase program earlier than expected.
The Fed began slashing its $ 120 billion monthly asset purchase program at this month’s meeting, and cut it by $ 15 billion a month – at that rate it would end by next June.
But the minutes drop a clear indication that the tapering could be sped up:
“Various participants noted that the (Policy) Committee should be ready to adjust the pace of asset purchases and raise the target rate for the key rate earlier than currently expected if inflation continues to be higher than the committee’s objectives.” . “
Some more reluctant Fed members stressed that given the supply chain issues and pandemic, they should be “patient” with incoming data.
Participants noted that the committee would not hesitate to take appropriate action to counter inflationary pressures that pose risks to its longer-term price stability and employment goals.
The prospect of a faster than expected tightening of Fed policy has weighed on the pound and the euro in recent weeks. Last night the pound sterling hit its 2021 low, trading at just $ 1.3325 to the dollar.
The euro is even weaker – at its lowest level against the US dollar since July 2020 and close to a 21-month low against the pound.
The FOMC protocol suggested the pigeons on the committee are “in retreat,” says Jeffrey Halley, Senior Market Analyst at OANDA:
The committee noted that inflation expectations could outperform projections in the short term and that a faster rate of slowdown cannot be ruled out.
It is probably the last point that weighed heavily on the markets. Once again the currency markets were the pressure relief valve, the US dollar rose again, supported by a soaked German IFO [business climate survey], Virus lockdowns and ECB officials pouring cold water when interest rates rise.
The news yesterday that Unemployment claims in the United States have fallen to their lowest level since 1969 could also encourage the Fed to tighten monetary policy more quickly.
German Bank expect the Fed to push through the taper accelerator in December by doubling the cuts on its purchases of US Treasuries and mortgage-backed securities.
This would mean that the project would be completed three months earlier than planned, as DB strategist Jim Reid explains:
That would bring monthly cuts in government bond purchases to $ 20 billion [up from $10bn] and $ 10 billion in MBS purchases [up from $5bn]which would prefer the end of the rejuvenation to March.
On the line, they postpone their call for withdrawals by one month to June 2022.
Something for investors to think about. Although … Wall Street is closed for Thanksgiving, European stocks are expected to open higher despite concerns about the fourth wave of Covid-19.
- 8.30 a.m. GMT: Interest rate decision by the Swedish Central Bank
- 9.30am GMT: Weekly real-time indicators of economic activity and social change in the UK
- 11am GMT: CBI UK Retail Sales Survey October
- 12.30pm GMT: European Central Bank publishes its accounts for the monetary policy meeting