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LGT Navigator: Federal Reserve Bank to set further course

September 22, 2021

The US central bank will announce its monetary policy decision this evening, accompanied by the latest forecasts for economic growth and the inflation outlook. The Bank of Japan already announced this morning to stick to its ultra-expansive monetary path for the time being. On capital markets, meanwhile, fears of an immediate default by the Chinese real estate group China Evergrande Group have calmed, at least for the time being.

Federal Reserve Bank to set further course

When Fed Chairman Jerome Powell steps up to the microphone tonight at 8:30pm, capital markets will once again be listening closely for fresh indications of the future direction of the US central bank. However, in view of the still high degree of uncertainty regarding the development of the economy and inflation, as well as the risks of a pandemic caused by the virus variants and a stronger cooling of the Chinese economy, the Fed is unlikely to push for a reduction in bond purchases for the time being. However, Powell must continue to prepare the capital markets for a foreseeable turnaround in monetary policy. Communication is the key here. The latest economic forecasts, including the first projections for 2024, are therefore eagerly awaited.

After a weak start to the week marked by the uncertainty in the "Evergrande" case, the stock indices have caught themselves in anticipation of the interest rate decision of the Federal Reserve. The Dow Jones Industrial closed -0.15% lower at 33'919.84 points on Tuesday, after partially correcting Monday's slump during the day. The S&P 500 was virtually unchanged (-0.08%) at 4'354.19 points. On the stock exchanges of Asia this morning, a similar but mixed picture can be observed.

Bank of Japan sticks to its path

Japan's central bank is sticking to its extremely loose monetary policy and showed caution in its economic assessment. The central bank drew a rather gloomy outlook, particularly regarding the important exports and the impaired supply chains, but also with regard to the pandemic development. This reinforced the impression that the Bank of Japan will maintain its stimulus measures.

Positive signals from the construction industry in the US

Building permits, which are meaningful for future construction activity, increased by +6% in the US in August compared with the previous month. Economists had expected a much smaller increase of +1.8% in August following a decline of -2.3% in July. At the same time, new housing starts also increased more than expected. Housing starts increased by +3.9% month-on-month (consensus +1.0%, after -6.2% in July).

OECD presents latest global economic forecasts

The Organization for Economic Cooperation and Development (OECD) expects the global economy to grow by an average of +5.7% this year and +4.5% next year. The OECD thus virtually confirmed its forecasts of +5.8% and +4.4% published in the spring. However, the organization assumes that the recovery of the world's largest economy, the US, will be slower this year than previously expected. The forecast for the US has been revised to +6.0% from +6.9%.

The OECD is much more optimistic about growth in the euro area than previously. The growth rate is expected to be +5.3% in 2021 (previously +4.3%) and +4.6% in 2022 (+4.4%). While the forecast for Germany in 2021 has been lowered from originally +3.3% to +2.9%, the OECD expects significantly stronger growth of +5.9% (previously +4.5%) in Italy this year. The growth forecasts for China remained unchanged from the spring outlook at +8.5% and +5.8% for the next two years. Overall, the outlook for the global economy remains clouded by considerable uncertainty.

OECD expects inflationary pressure to persist

The OECD observes the sharp rise in inflation rates with concern and concludes that higher commodity prices and the increase in global transport costs are currently contributing around 1.5 percentage points to consumer price inflation in the 20 major industrialized and emerging economies. In the US, the OECD forecasts inflation of +3.6% this year (previously +2.9%) and +3.1% in 2022 (+2.6%). In the eurozone, the annual inflation rate is likely to average +2.1% this year (previous forecast +1.8%) and +1.9% next year (+1.2%).

 

Economic Indicators September 22

MEZ Country Indicator Last period
00:00 HK / SK Holiday
05:00 JP Bank of Japan monetary policy announcement  -0.1%
16:00 EZ Consumer Confidence (September)  -5.3
16:00 US Existing Home Sales (August, m/m) +2.0%
20:00 US Federal Reserve monetary policy announcement & forecasts +0.25%
20:30 US Fed Governor Powell Press Conference

 

Earnings Calender September 23

Country Company Period
US Nike Q1
US Costco Q4

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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