Markets edgy ahead of US Fed decision; oil supercycle ‘unlikely’ – business live

Markets edgy ahead of US Fed decision; oil supercycle ‘unlikely’ – business live

Actually, here’s one more comment from Unigestion’s Cross Asset Solutions team.

They say investors found what they needed in this FOMC meeting: improvement in fundamentals and no early signs of tapering in liquidity injections.


The Fed has made it clear that it sees the improvement that all investors are seeing and responding to. However, no mention has been made of the danger of rising rates or uncontrolled inflation. The rise in inflation is “transient”, that in our view is the keyword of this meeting. As long as the Fed does not see a longer-lasting growth acceleration, it will not believe in a longer-lasting inflation wave. When asked about a potential tapering, the answer was clear: “not now”. Goldilocks here we come.

This is visible in the market reaction tonight – with stocks up to record highs on Wall Street, and the dollar down.


Markets have been served with better growth, controlled inflation expectations and no changes to accommodation for the foreseeable future. The initial reaction weighed on the US dollar, pushed equities 1% higher than their intraday lows while yields on 10-year Treasuries were a touch softer.

The S&P 500 is back to historical highs of 3960, 10-year yields are at 1.66% after reaching 1.685% earlier in the day (their highest level since February last year) while inflation breakevens continued to creep higher around the 2.3% level.

Fed meeting: what the experts say

And finally… here’s a round-up of expert reaction to the Fed meeting.

Anna Stupnytska, global economist at Fidelity International, says the Federal Reserve sent a dovish message today (helping to push Wall Street to those fresh highs).


The combination of incredibly easy financial conditions, which hardly tightened over the past few weeks, accelerating vaccination campaign, another substantial fiscal package recently legislated and re-opening prospects on the horizon is certainly boosting Fed’s tolerance to higher yields.

“While inflation and growth forecasts were revised up over the forecasting horizon, the median dot remained unchanged, suggesting no hikes through 2023. This sends a dovish message, revealing that the Fed is serious about pursuing its new FAIT [flexible average inflation targeting] framework.”

Michael Pearce of Capital Economics believes the FAIT framework could allow rates to stay on hold for the next few years:


The updated economic projections released after the Fed’s mid-March meeting show that officials expect strong economic growth this year to have only a transitory impact on inflation, which explains why most still aren’t thinking about thinking raising interest rates.

Even if inflation proves more stubborn, we expect their new framework will allow them to justify leaving rates unchanged over the next few years.

Paul O’Connor, Head of Multi-Asset at Janus Henderson, says Jerome Powell has deferred some tougher decisions, notably about tapering.


As widely expected, the Fed’s new growth forecasts were a major uplift to December’s stale predictions, reflecting recent improvements in US macro momentum, the new administration’s fiscal stimulus and vaccine-boosted reopening trends. Real GDP forecasts of 6.5%, 3.3% and 2.2% for 2021, 2022 and 2023 and Core PCE forecasts of at 2.2%, 2.0% and 2.1% were typically quite close to consensus expectations.

What was most interesting here was that, despite these forecasts and the Fed’s projected decline in the unemployment rate from over 6% today to 3.5% in 2023, the consensus view from Fed governors is that they expect to keep interest rates on hold throughout 2023. While bond markets can take comfort from the Fed delivering on its promise to go slowly with rate hikes, despite inflation creeping above the 2% target, the monetary tide is nevertheless turning. Whereas, back in December, only five of 18 Fed officials predicted higher rates in 2023, seven now expect a rate hike in that year and a third of the committee expects that more than one will be needed. Four participants now project hikes for 2022, compared to just one in December.

The Fed delivered a fairly dovish message to the markets today, but the big debates have been deferred not decided. While it is not hard for the Fed to remain patient, while projecting inflation bouncing around target over the forecast horizon, the pressure to tighten policy is likely to intensify if the US recovery accelerates into the summer, as everyone expects. Many of the questions that have been avoided today will linger over the months ahead and may well have become more urgent by the June FOMC. By then, the Fed might be prepared to take the first decisive step away from the current super-accommodative monetary stance by indicating when it will start to taper QE. If macro momentum continues to build, it might also be confirming market expectations of rate hikes in 2023 at that meeting. The June FOMC could be a more challenging meeting for Chairman Powell than today’s turned out to be.

Hugh Gimber, global market strategist at J.P. Morgan Asset Management, reckons we could see more volatility this year:


“Chair Powell had to walk a tightrope in the press conference, balancing a rosier outlook against the Fed’s commitment to let the economy run hot. The recent swings in Treasury yields highlight that investors are still not fully comfortable with numerous aspects of the Fed’s new target – what exactly their tolerance is for higher inflation, what inclusive full employment looks like in practice and how close to these goals the Fed needs to be before it begins to remove accommodation.

“As growth picks up sharply in the coming months, all of these uncertainties point to the potential for ongoing volatility in bond markets. This may create periodic bouts of instability in risk assets but overall we expect the vaccines, stimulus cheques and consumers looking to make up for lost time to translate into strong corporate earnings in the second half of the year, which should propel stock markets higher by year end.”

Goodnight! GW

Updated

Dow & S&P 500 close at record highs

Both the Dow and the S&P 500 have both closed at record highs, in fact, as worries about US interest rate hikes are soothed by the Fed.

Wolf Blitzer
(@wolfblitzer)

Yet another new record high for the Dow Jones Industrial Average. For the first time ever, the Dow closed above 33,000 – specifically 33,015 – up 189 points. That’s probably good news for your 401(k).

March 17, 2021

Yahoo Finance
(@YahooFinance)

S&P 500, Dow jump to record highs after Fed maintains outlook for near-zero rates, quells inflation concerns https://t.co/PQ8KTLQwOY by @emily_mcck pic.twitter.com/mXHmx3YNQQ

March 17, 2021

Updated

Wall Street closes higher thanks to dovish Fed

The Wall Street sign is pictured at the New York Stock exchange (NYSE) in the Manhattan borough of New York.

The Wall Street sign is pictured at the New York Stock exchange (NYSE) in the Manhattan borough of New York. Photograph: Carlo Allegri/Reuters

Stocks have closed higher on Wall Street, as concerns that the Fed was moving towards an earlier interest rate hike faded.

The Dow Jones industrial average has closed 189 points higher at 33,015, a gain of 0.6% today, as traders welcomed the upgraded growth forecasts.

The broader S&P 500 index shrugged off its earlier losses too, to end the day up 0.3% at 3,974 points, up 11.41 points.

The Nasdaq also bounced, as US bond yields fell back, with the tech index closing 53 points higher at 13,525, up 0.4% (having been down 1% before the Fed statement hit the wires.)

The US dollar has fallen, after the Fed raised its growth forecasts and pushed back against suggestions that it could taper its bond-buying programme soon.

This has pushed sterling up by eight-tenths of a cent, to $1.396.

The euro is up a similar amount, to $1.198.

Holger Zschaepitz
(@Schuldensuehner)

Dovish Fed weighs on the Dollar. Euro jumps to almost $1.20 as Fed sees inflation bump short-lived. pic.twitter.com/1B1CtxT62z

March 17, 2021

Q: Are the supply chain bottlenecks getting better, or worse?

Jerome Powell saying it’s impossible to say for sure.

But with stimulus checks being sent out, and Covid cases coming down, the really strong economic data is coming, and that’s when you’ll see where the bottlenecks are.

But firms will be reluctant to raise prices, he predicts, as he wraps up the press conference.

Powell: Expect bottlenecks and one-time bulge in prices

Q: Households are sitting on a lot of excess savings. How much will that affect inflation, and will it be transitory?

Powell says the Fed is looking at how people will spend when the economy reopens, and used very conservative, mainstream assumptions.

There is very likely to be a step-up of inflation in March and April, when last year’s low numbers drop out of the 12-month window. That ‘fairly significant pop’ will wear off quickly, though.

Past that, as the economy reopens, people will spend more – in restaurants, theatres, and on travel. As Powell puts it:


You can only go out to dinner once per night, but a lot of people can go out to dinner.

There will also be bottlenecks – firms won’t be able to service all the demand.

That will lead to a relatively modest increase in inflation, Powell predicts – a “one-time bulge in prices”, but it won’t change inflation going forward.

More reaction….

Simon French
(@shjfrench)

Powell doing a fine job of keeping maximum employment sufficiently loosely defined to give FOMC wriggle room as US economy evolves. Smart policymaking – if disappointing for those looking to narrow down timing for lift off. Will be a theme again & again in 2021 press conferences

March 17, 2021

Ian Shepherdson
(@IanShepherdson)

Honestly, people, as long as yields are rising because of stronger growth expectations and not inflation expectations, we just don’t care very much – Powell, roughly.

March 17, 2021

Jerome Powell does not sound concerned that achieving high employment could trigger a surge of inflation.

There was a time when there was a tight connection between unemployment and inflation, he says. That time is long gone, Powell insists [a nod to the demise of the Phillips Curve].

He points out that the US had a strong labour market before the pandemic, without having troubling inflation.

There is a link between wage inflation and unemployment, Powell continues. But, when wages move up because unemployment is low, firms have been absorbing it into their margins rather than raising prices.

We think we have freedom to seek to achieve high levels of employment without worrying too much about inflation, Powell insists firmly.

Guy LeBas
(@lebas_janney)

Now @AnnekenTappe Can you talk about the relationship about persistent unemployment and inflation?

Powell: Well, the Phillips curve is deader than this dude, so… pic.twitter.com/M8AB02Z519

March 17, 2021

Here’s the key message from a chuckling Jerome Powell today – it’s not time to start talking about talking about tapering the Fed’s stimulus programme.

CNBC
(@CNBC)

Now is not the time to talk about tapering, Fed Chair Jerome Powell says. “When we see that we are on track to achieve substantial further progress, then we will say so well in advance of any decision to actually taper.” https://t.co/wkAsg7UITW pic.twitter.com/JBzrI4wltF

March 17, 2021

Jerome Powell is spending a lot of his press conference batting away questions about when the Fed might tighten policy.

His main point is that economic uncertainty is still high, so ‘liftoff’ will depend on outcomes which are currently highly uncertain.

@DukeStJournal
(@DukeStJournal)

The gist of Powell’s answers so far has been that the economy has a lot further to go than inflation hawks realize. Currently passed fiscal stimulus has things headed toward “liftoff” (propelled by fiscal support), but he hasn’t yet mentioned “escape velocity” (self-sustaining).

March 17, 2021

Hammerstone Markets
(@HammerstoneMar3)

#Powell
-expect we will begin to make faster progress on labor mkts, #inflation as year goes on, will have to see it first
-we’ve laid off very clear guidance on rate liftoff
-will wait to hike until requirements are clearly met
– resisted quantifying comfort level for inflation

March 17, 2021

Powell: I’d love to see faster European growth and smoother vaccine rollout

Q: Given the problems in Europe’s economy, could the eurozone drag the US recovery down?
Fed chair Jerome Powell agrees that the US and European recoveries are diverging, as happened after the financial crisis. As before, the US is leading the global recovery. He points out that the Fed’s mandate is domestic – maximum employment and price stability – but it does monitor developments abroad. Very strong US demand, as the economy improves, is going to support global activity as well, he predicts, as it should mean the US imports more from abroad.

And Powell adds:


I’d love to see Europe growing faster. I’d love to see the vaccine rollout going more smoothly.

But he’s not worried about the impact on the US economy. The US is on a very good track, Powell continues, with very strong fiscal support coming, vaccinations going quickly, and cases coming down.


I think we’re in a good place.

Astrid Doerner
(@AstridDoerner)

#FED Chair #Powell sends a not-so-friendly greeting to the #EU: “I’d love to see Europe growing faster and I’d love to see the vaccine roll out going more smoothly.” He is not the only one.. #Handelsblatt

March 17, 2021

Matthew C. Klein
(@M_C_Klein)

“I’d love to see Europe growing faster and see the vaccine rollout going more smoothly”

–Powell

March 17, 2021

Robert Frick
(@RobertFrickNFCU)

#Powell on diverging recoveries, U.S. v Globe, we can help the world with our demand, would love to see Europe growing strongly.

March 17, 2021

Jerome Powell also cautions that it will take time for the labor market to recover from the pandemic.

Even with a rapid economic bounceback, there are 10 million people that need to get back to work, and it’s going to take some time for that to happen.

Heather Long
(@byHeatherLong)

Fed Chair Powell on the labor market still in dire straights:

“There are in the range of 10 million people who need to get back to work and it’s going to take time for that to happen.”

“Realistically, given the numbers, it’s going to take time.” pic.twitter.com/T4sV6x1tv5

March 17, 2021

Sylvan Lane
(@SylvanLane)

Powell striking a balance on the outlook. He says there’s no doubt we’re moving in the right direction, but the virus isn’t quashed yet and there are still ~10 million that need to figure out ways to get back to work. “The faster the better…but it’s going to take some time.”

March 17, 2021

Powell points out that the US is still fighting the Covid-19 pandemic, and the path of the virus remains an important factor:

FXGlobe Market News
(@Fxglobe_1)

FED’S POWELL: THE PATH OF THE VIRUS CONTINUES TO BE IMPORTANT, WE ARE NOT ACTUALLY DONE YET.

March 17, 2021

Here are the key points from the Fed today, via Bloomberg’s Francine Lacqua:

Francine Lacqua
(@flacqua)

#Fed from @business @TheTerminal
🔸Median dot plot shows rates on hold through 2023
🔸 Seven of 18 officials see rate hike in 2023, up from five
🔸 Powell says economic recovery ‘remains uneven’
🔸 Transient price bumps won’t meet Fed’s inflation goal

March 17, 2021

On the dot plots, Powell insists that a strong bulk of the FOMC committee don’t expect interest rates to increase during the current forecast period (before the end of 2023).

And he’s pushing back against focusing too much about when the first US rate hike might come – pointing out that the state of the US economy in two or three years is highly uncertain.

Kailey Leinz
(@kaileyleinz)

“The state of the economy in two or three years is highly uncertain, and I wouldn’t want to focus on the timing of an exact rate hike that far into the future.” -Powell

March 17, 2021

Powell also flagged that a ‘transitory’ rise in inflation over the Fed’s 2% target would not meet its standard to trigger a rate rise.

Bloomberg Economics
(@economics)

Powell says the Fed will keep rates low until employment goals are reached and inflation is on track to rise above 2%

“I would note that a transitory rise in inflation above 2% — as seems likely to occur this year — would not meet this standard” https://t.co/FICe1JQv0S

March 17, 2021

Q: Is it time to start ‘talking about talking about’ tapering the Fed’s bond-buying stimulus programme?

Jerome Powell plays down the suggestion.

We want to see actual progress towards our target of “substantial further progress” in maximum employment and price stability, Fed chair Powell explains, rather than simply forecasts.

When the data shows were are on track to achieve that substantial progress, we’ll say so, he adds.

Kailey Leinz
(@kaileyleinz)

Q: “Is it time to start talking about talking about tapering yet?”
Powell: *laughs“not yet”

March 17, 2021

Carl R. Tannenbaum
(@NT_CTannenbaum)

#Powell says the #Fed wants to see actual economic progress, not forecasted economic progress. Tapering conversation won’t begin until then.

March 17, 2021

Ian Shepherdson
(@IanShepherdson)

Talking about talking about tapering?
“Not yet” And that’s all you need to know, for now.

March 17, 2021

Christophe Barraud🛢
(@C_Barraud)

🇺🇸 POWELL: #FOMC GDP FORECASTS HAVE BEEN REVISED UP NOTABLY – BBG
*That reflects recent fiscal policy as well as vaccinations.

March 17, 2021

Federal Reserve chair Jerome Powell is holding a press conference now.

He explains that indicators of US economic activity and employment have improved recently, but cautions that no-one should be complacent.

The recovery is uneven, and far from complete.

The Fed will continue to provide support for the US economy for as long as needed, Powell says, adding that ongoing vaccinations offer hope of a return to more normal conditions later this year.

Powell says the Fed’s growth forecasts have been “revised up notably since December” [to show 6.5% growth in 2021, up from 4.2% previously expected].

He says this reflects progress on vaccinations and fiscal policy (a nod to President Joe Biden’s $1.9trn stimulus package).

James Politi
(@JamesPoliti)

Powell: “No one should be complacent.
At the Fed, we will continue to provide the economy the support that it needs for as long as it takes”. Further: recovery remains “uneven” and ” far from complete” – path ahead still “uncertain”.

March 17, 2021

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