Good morning and welcome to our continued coverage of the world economy, financial markets, the eurozone and business.
The US central bank could wrap up its stimulus program and raise interest rates earlier than expected, with inflation at a 30-year high and the job market improving.
The minutes of the Federal Reserve’s most recent meeting, released last night, show that Some Policymakers are moving to end their bond buying scheme sooner, given America’s high inflation rate, which hit 6.2% last month.
The Fed began reducing its $ 120 billion / month asset purchase scheme this month, slashing it by $ 15 billion per month, at what rate it would end next June.
But the minutes leave a clear clue that the set-up could be sped up:
“Several participants noted that the (Policy Setting) Committee should be prepared to adjust the pace of asset purchases and increase the target range for the federal funds rate sooner than participants currently anticipate if inflation continues to be higher. higher than levels consistent with the goals of the Committee. . “
Some more dovish Fed members stressed that they should adopt a “patient attitude” toward incoming data given the supply chain problems and the pandemic.
Participants noted that the Committee would not hesitate to take appropriate action to address inflationary pressures that pose risks to its long-term employment and price stability objectives.
The prospect of the Fed tightening policy faster than expected has weighed on the pound and the euro in recent weeks. Last night, the British pound touched its lowest level in 2021, trading at just $ 1.3325 per US dollar.
The euro is even weaker: at its lowest level against the US dollar since July 2020, and near a 21-month low against the pound.
FOMC Minutes suggested committee pigeons are “in retreat,” says Jeffrey halley, Senior Market Analyst at OANDA:
The committee noted that inflationary expectations in the short term could exceed forecasts and that a faster reduction is not ruled out.
It is probably the last item that weighed the most in the markets. Once again, currency markets were the pressure relief valve, with the US dollar rising once again, helped by a soggy German IFO [business climate survey], fears of virus lockdowns and ECB officials pouring cold water on rate hikes.
Yesterday’s news that US jobless claims have plunged to the lowest level since 1969 could also encourage the Fed to tighten policy more quickly.
German bank The Fed is expected to press down on the tuning accelerator in December, doubling cuts in its purchases of US government debt (Treasuries) and mortgage-backed securities.
That would end the plan three months earlier than planned, as DB strategist Jim Reid explains:
This would bring monthly reductions in Treasury purchases to $ 20 billion. [up from $10bn] and MBS purchases at $ 10 billion [up from $5bn], which would advance the end of the set-up until March.
Online, they will advance their call for takeoff one month until June 2022.
Something for investors to ponder. Although … Wall Street is closed for Thanksgiving, while European stocks are expected to open higher despite concerns about the fourth wave of Covid-19.
- 8.30 a. M. GMT: Swedish central bank interest rate decision
- 9.30 a.m. M. GMT: Weekly real-time indicators of economic activity and social change in the UK
- 11:00 am: CBI Distribution Trade Survey of UK Retail Sales in October
George is Digismak’s reported cum editor with 13 years of experience in Journalism