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What do we expect from US Fed?

17 Mar 2021 04:16 PM

Today, global markets await the US Fed's decisions during its meeting in March and the quarterly economic expectations, which will have strong moves not only on the US dollar, but also on the performance of the global markets.

Most of the expectations are that the bank will keep the interest rates and the QE program unchanged. However, the comments by Fed Chairman Jerome Powell will be the main driver of the US dollar in the coming period.

Changes in the economy since the last meeting

The most prominent changes in the largest global economy since the last meeting were the Senate's approval of the $1.9 trillion stimulus package and Biden signing it into law to increase the likelihood that the US economy will show further progress in the coming period.

It is also worth noting that moving forward with the coronavirus vaccine distribution has contributed a lot to improving market sentiment. This caused many global institutions such as OECD and Goldman Sachs to raise their expectations for economic growth in 2021 and 2022.

Economic data shows significant improvement

The economic data witnessed a noticeable improvement in recent times, and the labor market's improved data greatly supports the inflation rates for the coming period.

Although the retail sales for February released on Tuesday decreased more than expected, down 3%, January data was revised from 5.3% to 7.3%.

Fears of rising inflation loom

This stimulus package in particular raises the risks of a sharp spike in inflation over the next year. The markets will be extremely sensitive to any changes in the interest rate hike expectations. This is in addition to the fears of the rise in the US dollar on the back of the significant increase in bond yields over the past period.

Bond yields are the biggest risk to the US Fed

As risk appetites rose and improved, bond yields increased at a significant pace, with recent 10-year yields holding near 1.63%.

This increase in returns was a major factor in the damage to technology stocks, however, Jerome Powell emphasized in his recent statements that this rise in earnings is natural given the current situation.

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