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LGT Navigator: The Fed's monetary policy turnaround draws closer

August 19, 2021

The minutes of the latest interest rate meeting of the Federal Reserve (Fed) show that the likelihood of an imminent reduction in monthly securities purchases has increased. However, one of the goals of the Fed's mandate, full employment, has not yet been achieved.

The Fed's monetary policy turnaround draws closer

In the minutes of the last meeting of the Federal Open Market Committee (FOMC) on July 28, the Fed noted that substantial further progress toward the full employment goal had not yet been achieved and therefore the current expansionary stance should be maintained. However, some council members believe a reduction in quantitative easing (QE) is warranted considering economic developments through the end of the year. At present, the Fed is still buying bonds worth USD 120bn every month. If the next labor market report on September 3 again shows sustained significant employment growth, Fed Chairman Jerome Powell could well tighten the monetary reins somewhat. Powell could already send a signal to this effect at the central bank meeting in Jackson Hole on August 26-28.

On Wall Street, the stock indices continued to decline in midweek and yields on the bond markets fell somewhat. Meanwhile, the US dollar rose to a nine-month high. The Dow Jones Industrial fell -1.08% to 34'960.69 points, extending the losses from the previous day. The S&P 500 also lost -1.07% to 4'400.27 points after and on the tech stock exchange Nasdaq, the indices were almost -1% lower. For bad mood provide at present above all the again strongly rising Covid-19 case numbers.

Eurozone inflation climbs above two percent

In the eurozone, the cost of living increased by +2.2% on an annual basis in July, the highest inflation rate since October 2018. In June, the inflation rate had still been +1.9%. Economists had expected this development but assume that the inflation rate will still rise to +3% by the end of the year. For its part, however, the European Central Bank (ECB) assumes that this increase will only be temporary. On a month-on-month basis, however, consumer prices in the euro countries declined by -0.1% on average. However, excluding the often-volatile energy and food, alcohol and tobacco prices, the core inflation rate weakened from +0.9% in June to +0.7% in July. While energy prices had risen strongly by +14.3% over the year, food prices remained below average.

Price pressure in the UK eases

In contrast to mainland Europe, price pressure on the British Isles eased noticeably in July. As a result, the inflation rate fell from +2.5% in June – the highest level since August 2018 – to +2.0% (consensus +2.3%), bringing the inflation rate back exactly in line with the Bank of England's target.


Economic Indicators August 19

MEZ Country Indicator Last period
14:30 US Initial Jobless Claims (weekly)  375,000
14:30 US Philly Fed Manufacturing Index (August) +48.6
16:00 US Leading Indicator (July, m/m) +0.7%


Earnings Calender August 19

Country Company Period
SZ Geberit H1
US Applied Materials Q2
US Macy's Q2


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