US Fed Eases Concerns Over Rising Interest Rates

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At the close of business last Friday, global equities ended the week in near record territory. This was as senior leaders of the US Federal Reserve affirmed the view that they are in no hurry to tighten monetary policy, and that the recent surge in inflation is transitory, resulting from pandemic-induced bottlenecks.

The rate on the benchmark US 10-year Treasury note held steady this week at 1.49% while the price of a barrel of West Texas Intermediate crude oil rose $2 to $73.10. Volatility, as measured by the Cboe Volatility Index (VIX), slipped to 16 from 19.2 a week ago as fears of a shift in tone from the Fed receded.



We are becoming more bullish on Canadian Equities
The CEO of BMO says to expect an economic boom for Canada as the pent up demand for goods and services is expected to break loose as the vaccination rate for Canada continues to rise.



Fed reiterates patient approach to removing accommodation
Fed Chair Jerome Powell testified on Capitol Hill this week that the central bank sees no risk of runaway inflation. While inflation has increased notably in recent months, it is expected to drop back toward the Fed’s longer-run goal, Powell said.

The Fed will support the economy for as long as it takes to complete its recovery, the chairman said. He added that the central bank will not raise rates preemptively because it fears the possible onset of inflation, but will instead wait for actual inflation or other imbalances before tightening policy.

Federal Reserve Bank of New York President John Williams said this week that while the economy is improving at a rapid clip, conditions have not progressed enough for the Fed to shift its monetary stance. “Lift off” is still way off in the future, he said.

The comments helped soothe fears sparked a week ago when Fed forecasts showed that members of the rate-setting Federal Open Market Committee expected to hike rates twice in 2023, some months earlier than they had previously predicted.

All banks regulated by the Fed passed their annual stress tests. This paves the way for the Fed to end temporary limits on the banks’ dividend payouts and stock buybacks.

Bipartisan US infrastructure deal reached
A bipartisan group of US Senators and the White House reached agreement on Thursday on an infrastructure package totalling nearly $1 trillion of spending over five years on roads, bridges, mass transit and the like. However, US President Joe Biden said he would veto the legislation if it was not accompanied by a broader social spending plan that concentrates on what his administration calls human infrastructure.

The second measure is opposed by Republicans and early indications are that it may have trouble gaining the support of all fifty Democratic senators to pass under the Senate’s arcane budget reconciliation rules, which require only a simple majority to gain passage rather than the usual sixty votes.

Sales slip amid stratospheric US house prices
The median price of an existing home in the US soared 24% from a year ago in May, helping cool demand for homes despite still low interest rates as more buyers are priced out of the market. Sales of both new and existing homes declined last month as inventories of unsold properties fell to astonishingly low levels. Houses remained on the market for only seventeen days, on average, before selling, according to data from the National Association of Realtors. The median price of an existing home in the US reached $356,600 last month.



Bank of England revises growth and inflation forecasts
The Bank of England said Thursday that it now expects inflation to peak near 3%, a half-percentage point higher than it forecast just six weeks ago. However, it also warned against premature tightening of monetary policy as it expects the inflation surge to be temporary.

On the growth front, the Bank sees economic growth accelerating to a 5.5% pace in Q2, faster than its previous 4.25% forecast. Markets are pricing in several BOE hikes in 2022, well before any move from the Fed.

Purchasing managers’ indices showed that the eurozone economy is expanding at its fastest pace in fifteen years as vaccination levels rise and more sectors of the economy reopen. Consumer confidence is rising as well.



Downtown Sydney, Australia and the city’s eastern suburbs, will go into lockdown for one week to counter an outbreak of the Delta variant of COVID-19.

Emerging markets central banks continue to hike rates well before their developed market counterparts. This week, central banks in Mexico, Hungary and the Czech Republic all hiked rates to restrain upswings in inflation.

The People’s Bank of China urged local banks to cut payment channels for cryptocurrency-related transactions. This follows recent moves to shut down crypto mining activities.

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