FOMC Preview

March 17, 2021

Since the last FOMC meeting seven weeks ago, investors have embraced riskier assets. The 10-year Treasury yield is 67 basis points higher now than then, and the DJIA is up 7.7%. The price of West Texas Intermediate crude oil has soared 21%, while gold has weakened 6.5%.  the dollar has risen 5.0% against the yen,  1.8% relative to the euro, and 1.4% on a trade-weighted basis.

The outlook for U.S. growth this year has improved, thanks to the vast American Rescue Plan, slower trends in Covid cases, hospitalizations and deaths, and a faster roll-out of vaccinations than was imagined at first. Inflation has picked up pace both globally and in the United States. More importantly, expectations of inflation later this year have climbed on the anticipation of pent-up demand, supply chain shortages, and energy prices that have already moved considerably higher.

Fed officials have said they will look through the anticipated rise of inflation near term. In fact, that upward path of inflation is embraced in the Fed’s stated goal of putting inflation “on a track to moderately exceed 2 percent for some time. The last set of FOMC macroeconomic projections released three months ago had bumped projected growth up to 4.2% in 2021 and 3.2% in 2022. The 2023 growth forecast of 2.4% was a third again higher than the longer run trend, which they believed to be 1.8%. Officials also revised the expected jobless rate lower such that it was projected at 3.7% by 2023. In spite of that, the forecast only showed inflation rising to 2.0%, not above such.

Updated forecasts will be revealed at this meeting, and growth will undoubtedly be revised up again. So likely will be inflation at least in the early years. The big uncertainty is whether these changes are enough in revised the predicted likely path of the fed funds rate. The current forecast didn’t anticipate a rise even by 2023, and the pace of asset buying wasn’t reined in at the January meeting. Even more recently, Chairman Powell’s semi-annual testimony last month to Congress on the economy and monetary policy went out of its way to stress that the U.S. economy remains a “long way” from achieving the central bank’s goals regarding the labor market and inflation, and the goals have qualitative as well as quantitative properties. Growth needs to be less uneven than now.

EUR/$ $/JPY 10Y, % DJIA Oil, $
06/30/04 1.2173 109.44 4.63 10396 37.95
06/30/05 1.2090 110.89 3.96 10370 57.00
06/29/06 1.2527 116.07 5.20 11077 73.41
06/28/07 1.3452 123.17 5.10 13456 69.82
08/07/07 1.3749 118.55 4.73 13510 72.27
09/18/07 1.3888 115.75 4.51 13475 81.42
10/31/07 1.4458 115.28 4.42 13873 93.59
12/11/07 1.4682 111.49 4.11 13645 89.78
01/30/08 1.4792 107.31 3.70 12454 91.70
03/18/08 1.5786 98.73 3.41 12257 107.53
04/30/08 1.5562 104.58 3.83 12953 111.54
06/25/08 1.5568 108.37 4.18 11837 133.62
08/05/08 1.5445 108.42 3.97 11484 119.82
09/16/08 1.4144 105.16 3.36 10936 91.18
10/08/08 1.3625 99.87 3.50 9447 87.02
10/29/08 1.2933 97.15 3.81 9145 67.38
12/16/08 1.3790 90.14 2.52 8687 44.14
01/28/09 1.3253 90.01 2.61 8356 42.92
03/18/09 1.3115 98.13 2.94 7340 47.73
04/29/09 1.3331 97.06 3.02 8194 51.05
06/24/09 1.3984 95.43 3.59 8373 68.76
08/12/09 1.4221 96.17 3.71 9366 70.64
09/23/09 1.4779 91.50 3.50 9859 69.13
11/04/09 1.4884 90.75 3.51 9896 80.66
12/16/09 1.4542 89.78 3.56 10478 73.14
01/27/10 1.4045 89.49 3.61 10148 73.31
03/16/10 1.3756 90.64 3.67 10645 81.45
04/28/10 1.3157 94.10 3.75 11043 82.57
06/23/10 1.2284 90.12 3.13 10307 76.50
08/10/10 1.3107 85.85 2.81 10605 79.94
09/21/10 1.3132 85.21 2.66 10747 73.05
11/03/10 1.4059 81.35 2.53 11174 84.59
12/14/10 1.3423 83.37 3.38 11497 88.47
01/26/11 1.3658 82.55 3.41 12001 87.36
03/15/11 1.3969 81.04 3.29 11815 98.09
04/27/11 1.4665 82.63 3.36 12612 112.48
06/22/11 1.4392 80.12 2.97 12175 94.87
08/09/11 1.4234 77.09 2.36 10993 81.76
09/21/11 1.3778 76.34 1.93 11377 86.74
11/02/11 1.3724 78.11 2.03 11805 92.77
12/13/11 1.3067 77.92 1.98 12130 100.20
01/25/12 1.3027 77.96 1.97 12670 98.85
03/13/12 1.3096 82.76 2.08 13044 106.34
04/25/12 1.3226 81.37 1.97 13096 104.13
06/20/12 1.2693 79.28 1.66 12837 83.63
08/01/12 1.2300 78.10 1.49 13028 88.98
09/13/12 1.2895 77.43 1.72 13342 97.60
10/24/12 1.2948 79.75 1.77 13115 85.72
12/12/12 1.3082 83.24 1.70 13325 87.13
01/30/13 1.3584 91.16 2.02 13949 97.63
03/20/13 1.2948 95.65 1.94 14497 92.82
05/01/13 1.3195 97.48 1.62 14740 90.47
06/19/13 1.3364 95.76 2.23 15304 98.38
07/31/13 1.3301 97.92 2.67 15565 105.63
09/18/13 1.3363 98.28 2.76 15606 107.01
10/30/13 1.3764 98.18 2.48 15660 97.42
12/18/13 1.3696 103.81 2.89 16198 98.06
01/29/14 1.3651 102.13 2.73 15719 97.23
03/19/14 1.3918 101.75 2.71 16335 99.96
04/30/14 1.3868 102.11 2.66 16553 99.52
06/18/14 1.3584 101.93 2.61 16892 106.12
07/30/14 1.3372 102.84 2.51 16878 101.45
08/17/14 1.2961 107.60 2.57 17151 94.05
10/29/14 1.2677 108.40 2.33 16956 82.51
12/17/14 1.2409 117.58 2.11 17201 57.85
01/28/15 1.1337 117.77 1.78 17457 44.75
03/18/15 1.0637 120.98 2.05 17733 42.49
04/29/15 1.1164 118.67 2.05 18039 59.16
06/17/15 1.1255 124.22 2.39 17862 59.12
07/29/15 1.1073 123.61 2.29 17720 49.17
09/17/15

10/28/15

 1.1334

1.1081

 120.86

120.50

 2.26

2.07

 16778

17687

 47.01

45.83
12/16/15

01/27/16

03/16/16

04/27/16

06/14/16

07/27/16

09/21/16

11/02/16

12/14/16

02/01/17

03/15/17

05/03/17

06/14/17

07/25/17

09/20/17

11/01/17

12/13/17

01/31/18

03/21/18

05/02/18

06/13/18

08/01/18

09/26/18

11/08/18

12/19/18

01/30/19

03/20/19

05/01/19

06/19/19

07/31/19

09/18/19

10/30/19

12/11/19

01/29/20

03/03/20

03/15/20

03/23/20

04/29/20

06/10/20

07/29/20

09/16/20

11/05/20

12/16/20

01/27/21

03/17/21

 1.0956

1.0874

1.1089

1.1339

1.1205

1.0998

1.1160

1.1099

1.0641

1.0741

1.0638

1.0910

1.1149

1.1735

1.2010

1.1631

1.1815

1.2424

1.2271

1.1963

1.1788

1.1668

1.1765

1.1400

1.1420

1.1415

1.1355

1.1244

1.1217

1.1132

1.1066

1.1117

1.1112

1.1002

1.1179

1.1087

1.0697

1.0859

1.1367

1.1787

1.1824

1.1814

1.2174

1.2115

1.1904

 

 

 121.72

118.48

113.70

111.37

106.15

105.65

100.84

103.33

115.37

113.52

114.48

112.47

111.55

111.17

111.34

113.91

112.58

109.31

106.27

109.91

110.38

111.69

112.94

113.88

112.26

109.55

111.42

111.17

108.36

108.59

108.16

108.89

108.62

109.14

107.21

108.33

111.26

106.73

107.24

104.84

105.00

103.68

103.65

104.07

109.26

 2.29

2.02

1.99

1.89

1.62

1.53

1.70

1.78

2.45

2.49

2.57

2.30

2.13

2.29

2.24

2.35

2.34

2.73

2.89

2.97

2.96

2.99

3.08

3.23

2.81

2.72

2.57

2.48

2.08

2.02

1.75

1.80

1.80

1.61

1.01

1.01

0.81

0.61

0.77

0.59

0.67

0.77

0.91

1.01

1.68

 17583

16002

17217

18013

17675

18461

18151

17989

19915

19890

20885

20920

21375

21711

22376

23405

24585

26259

24839

24095

25309

25310

26543

26195

23881

24841

25727

26624

26452

27210

27048

27067

27877

28833

25917

23185

18592

24667

27169

26467

28196

28418

30,125

30,554

32,903

 35.95

30.85

37.79

44.89

48.29

41.91

43.44

45.18

51.83

53.33

48.43

47.96

44.71

48.75

50.55

54.24

56.60

64.41

65.00

67.57

66.77

67.62

71.68

60.93

47.80

54.51

59.48

63.38

53.65

58.48

58.16

54.60

58.68

53.52

47.18

31.73

23.36

15.30

39.05

41.22

40.00

38.84

47.77

52.81

63.92

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission. 

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