Two-Day FOMC Meeting Ends Today with Likely Same Dovish Message

July 28, 2021

Against the backdrop of rising Covid-19 infections in the United States, this isn’t the time for the Fed to express a lot of concern about inflation or to show greater urgency as official begin to contemplate a plan to taper monetary stimulus. In the three days of July 25-27, new U.S. coronavirus cases averaged 57.3k per day versus 11.8k on June 13-15. Yesterday’s total was 63.2k. The FOMC announcement is due at 14:00 EDT and will be followed 30 minutes later by Chairman Powell’s press conference.

Ahead of today’s FOMC announcement, the dollar is 0.1% firmer than at Tuesday’s close against its weighted index. The U.S. currency has risen 0.4% versus the yen and 0.1% against the euro but is flat relative to the Swiss franc and sterling. The DOW is down 0.3%. The Nasdaq is up 0.7%, and the S&P 500 shows no net change. The price of gold is flat, while that of WTI oil has strengthened 0.7%. The ten-year U.S. Treasury yield is up a basis point, while its German and British counterparts are respectively one basis point lower and two basis points higher on the day.

A summary of opinions expressed at the latest Bank of Japan Board meeting reads very dovishly with a warning against premature tightening and words of caution that it will likely be a long additional time before the litmus test for tapering is met in Japan.

Among emerging economy central banks — many of which have histories of significant bouts of inflation — there is greater need now for monetary restraint. This is particularly so among former members of the Soviet Union. The National Bank of Tajikistan today engineered its third interest rate hike of 2021, lifting such by 100 basis points to 13.0%. Earlier hikes occurred in April of 100 basis points and February of 25 bps, and the rate level is now the highest since 2019.

Wednesday’s data release highlights have been

  • A 3-month high U.S. trade deficit of $91.20 billion in June according to a preliminary estimate. That follows $88.16 billion in May.
  • A four-decade high in German import price inflation, which at 12.9% in June is up from 11.8% in May and minus 1.2% in January.
  • A six-month low in investor sentiment toward Switzerland.
  • A 51-quarter high in Australian CPI inflation of 3.8% in 2Q 2021, up from 1.1% in 1Q and -0.3% in the second quarter of 2020.
  • A 0.1 percentage point dip to 1.4% in Japanese corporate service prices in June versus negative 0.4% last January.
  • A 3-month low in South Korean consumer confidence in June.
  • 34-month and 10-month respective highs in June in Italian consumer confidence and manufacturing sector sentiment.
  • Weaker-than-projected German consumer confidence that matched the  prior month’s one-year high but didn’t improve further.
  • A 0.2-point dip in French consumer confidence to a 2-month low of 10.1 in June.
  • A retrenchment in Britain’s Nationwide house price index, which after posting a 17-year high in its 12-month increase of 13.4% in June was 10.5% above its year-earlier level in July and 0.5% lower in  month-on-month terms.
  • On-year growth in retail sales during June of 10.6% in Ireland (a 4-month low), 8.5% in Sweden (after 10.7% in May), and zero percent in Norway.
  • The 3.01% interest rate on a 30-year fixed rate mortgage in the United States last week was ten basis points less than in the prior week and at its lowest level in 23 weeks.
  • Austria’s manufacturing purchasing managers index in July dropped 3.1 points below June’s record high to a 4-month low of 63.9.

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

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