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What to know this week



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Traders returning from the long holiday weekend will turn their attention to more comments from the Fed. The minutes of the latest meeting of the Federal Open Market Committee and a speech by Fed Chairman Jerome Powell will be held on deck. There are relatively few new economic data reports or company earnings results planned to be released.

The minutes of the Federal Open Market Committee (FOMC) meeting are scheduled to be released on Wednesday afternoon and will clarify the members’ thoughts at the March meeting. At the end of the meeting, the central bank raised the median forecast for economic growth substantially, reflecting the improvement in the growth trend as the new COVID-1

9 infection situation improves and vaccinations expand. The Central Bank said it expects real GDP growth of 6.5% this year, compared with the 4.2% forecast in December. The Fed also stated that it expects the unemployment rate to rise to 4.5% by the end of the year and then return to the pre-pandemic level of 3.5% in 2023.

Although these forecasts have improved, the Fed still pointed out in its telegram that interest rates may remain near zero by 2023. Although the economic recovery is faster than expected, the central bank will maintain an ultra-loose monetary policy. Market participants have been wary of this information, and the Fed hinted that even in the case of rising inflation, the stubborn tendency to loose monetary policy is the same. The Fed’s latest forecast shows that the median member believes that this year’s core inflation rate will rise to 2.4%, reaching and exceeding the Fed’s 2% target two years earlier than previously expected.

Fed Chairman Powell said at a press conference in mid-March that inflation needs to be “moderated above 2% over a period of time” in order for the Fed to consider its achieved inflation target and allow interest rate hikes. However, this assertion left room for explanation for market participants, leading many to speculate that the Fed might be urged to adjust policy earlier than the recent Telegraph.

“Forecast divergence”

According to the latest survey by the German bank Deustche Bank, “The current gap between the market and the Fed is mainly about forecast differences. In particular, survey respondents predict that by 2022 and 2023, the core PCE will be in the range of 2.2%-2.3%. The hawkish reaction of the internal Fed,” Deutsche Bank economist Matthew Luzzetti wrote in a report. “We learned at the FOMC meeting that the core PCE is 2.1% [personal consumption expenditures] The inflation rate is not enough to trigger Brexit. It is unclear whether an inflation rate of 2.2%-2.3% is enough to make the Fed tighten monetary policy, as expected by our survey and market pricing. This ambiguity is a shortcoming of the Fed’s flexible average inflation target (FAIT) approach, which makes key parameters uncertain. ”

He said: “If the Fed clearly indicates that PCE core inflation within a year or two is in the range of 2.2%-2.3% in line with their views on FAIT, and will not trigger monetary tightening, then they may affect market pricing.” Added. “On the contrary, if the Federal Open Market Committee believes that they will raise interest rates in response to these inflationary awareness, then the market is currently pricing the appropriate response function, so it will take some time to judge whether the Fed or the market is correct for this persistence. Inflation shock.”

WASHINGTON, DC-January 29: Federal Reserve Chairman Jerome Powell (Jerome Powell) speaks at a press conference at the Federal Open Market Committee meeting in Washington on January 29, 2020. Chairman Powell announced that the Fed will not adjust interest rates.  (Photo by Samuel Corum/Getty Images)

WASHINGTON, DC-January 29: Federal Reserve Chairman Jerome Powell (Jerome Powell) speaks at a press conference at the Federal Open Market Committee meeting in Washington on January 29, 2020. Chairman Powell announced that the Fed will not adjust interest rates. (Photo by Samuel Corum/Getty Images)

However, although the jury does not seem to be among the market participants in terms of the timing of the next interest rate hike, many people agree that the first step in the Fed’s tightening policy is likely to occur in the asset purchase plan during the crisis. in. Fed Chairman Powell said that before considering reductions, the central bank will seek “substantial further progress”, especially “actual progress” in the data, rather than “predicted progress” in order to achieve the Fed’s employment and inflation targets.

Nevertheless, as the latest economic data for March exceeded expectations, the Fed may soon begin to provide firmer guidance on its plan to reduce its $120 billion monthly asset purchase plan, which was implemented as early as the pandemic began. year.

BlackRock’s chief investment officer Rich Rieder said in a report: “Financial conditions should remain moderately accommodative for a period of time, and we think this may be overshooting.” “We think The Fed should be able to faster than many people expected, and even reduce the scale of asset purchases before the end of this year or the beginning of next year, which hints to us that the earliest time to communicate its plan may be at the June meeting.”

Although the minutes of the upcoming meeting did not take into account the Federal Open Market Committee members’ assessment of the latest batch of economic data, it will provide market participants with a sense of whether certain members tend to avoid the initial economic recovery faster than expected. sign. In determining the direction of monetary policy.

Having said that, Fed Chairman Powell’s public speech next Thursday will provide a more timely understanding of the Fed’s policy thinking. Powell will deliver a speech at the International Monetary Fund’s symposium on the global economy on Thursday afternoon.

The discussion will take place about a week after the March employment report of the U.S. Department of Labor is released. The report showed that 916,000 non-agricultural employment data was better than expected, and the unemployment rate fell to 6.0%. In addition, last week the American Institute of Supply Management’s Manufacturing Purchasing Managers Index unexpectedly jumped to a 37-year high. Some survey participants have cited rising commodity prices and the mismatch between supply and demand that may exacerbate price pressure. Market participants will pay attention to Powell’s speech to see if these printed materials will change the direction of the Fed’s monetary policy forecast.

RBC Capital Markets economists wrote in a report last week: “We expect that with the arrival of the data, the volatility of the Fed’s views will become more apparent in the coming months.”

Economic calendar

  • on Monday: Markit US service industry PMI, final announcement in March (expected 60.2, previously 60.0); Markit US comprehensive PMI, final report in March (previously printed as 59.1); March ISM service index (expected 58.7, February 55.3 ); February factory orders (estimated -0.5%, January 2.6%); durable goods orders, final February orders (expected -1.1%, previously printed as -1.1%); durable goods orders, excluding transportation , Final order in February (expected -0.9%, previously printed -0.9%); non-defense capital goods orders, excluding aircraft, final ruling in February (previously printed as -0.8%); non-defense capital goods transportation, no Including airplanes, final quota in February (-1.0% at the time of previous printing)

  • on Tuesday: Job vacancies at JOLTS, February (estimated 6.944 million compared to 6.917 million previously)

  • on Wednesday: MBA mortgage applications for the week ending April 2 (-2.2% in the previous week); February trade balance (expected to be US$70.5 billion, January: US$68.2 billion); February consumer credit (expected to be US$2.8 billion, US$1.315 billion in January) FOMC meeting minutes, March meeting

  • Thursday: The number of initial claims for unemployment benefits as of the week of April 3 (estimated to be 690,000, compared with 719,000 in the previous week); the amount of continuing claims for the week as of March 27 (the previous week was 3.794 million)

  • Friday: Producer price index in March, monthly rate (expected 0.5%, 0.5% in February); Producer price index in March, excluding food and energy, increased monthly (expected 0.2%, 0.2% in February) ; March producer price index (year-on-year) (expected 3.8%, February 2.5%); March producer price index, excluding food and energy year-on-year (expected 2.7%, February 2.5%); Wholesale inventory, month by month, final in February (expected 0.5%, previous 0.5%)

Earnings calendar

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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