Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
After a dovish performance from the US Federal Reserve last night, investors are looking to hear the Bank of England’s views on the state of the UK economy.
The Bank’s Monetary Policy Committee isn’t expected to change interest rates or its stimulus programme at today’s meeting. It could express a more optimistic view on the UK economy, though, given the vaccine rollout programme, the latest extension of the furlough scheme, and a smaller-than-expected fall in GDP in January.
Jim Reid, Deutsche Bank strategist, says the BoE is expected to “walk a tightrope between talking up the recovery whilst avoiding too hawkish a message that would see an unwarranted tightening in financial conditions.”
Naeem Aslam, chief market analyst at Avatrade, identifies three targets for the bank:
Firstly, the bank needs to set the record straight that there will be no need for negative interest and the market players need to eradicate those expectations.
Secondly, the bank will need to embrace the remarkable progress on the vaccine front, and how that has improved the economic health.
Finally, the governor will also likely to show his appreciation in terms of support from the fiscal side, and its influence on economic recovery.
The Fed gave a reassuring message to markets last night. It hiked its forecast for US growth in 2021 to 6.5% (from 4.2%), and lowered its unemployment projections, while also dampening talk that it could slow its stimulus programme soon.
A majority of policymakers still expect US interest rates to remain on hold beyond 2023, despite hopes of a rapid recovery this year thanks to vaccine rollouts and fiscal spending.
Fed chair Jerome Powell insisted that the US economy hadn’t yet made the substantial progress on inflation and unemployment which policymakers are looking for. With a chuckle, he batted away the suggestion it was time to start “talking about talking about” tapering.
Basically, the Fed wants to see improving data, not simply forecast it. As Powell put it:
“When we see actual data coming in that suggests that we’re on track to perhaps achieve substantial further progress, then we’ll say so.
And we’ll say so well in advance of any decision to actually taper.”
Powell did predict some supply chain disruption and rising prices this year as the US economy reopened and people headed back to restaurants and theatres. But he rebuffed the idea that getting employment up would be inflationary.
Wall Street got the message, sending the Dow Jones industrial average and the S&P 500 to record highs last night.
US Treasury bond yields dipped back a little, having hit 13-month highs ahead of the Fed decision, as inflation worries faded.
- 8am GMT: ECB president Christine Lagarde appears before the European Parliament committee on Economic and Monetary Affairs (ECON).
- 10am GMT; Eurozone trade balance
- Noon: Bank of England decision on UK interest rates
- 12.30pm GMT: US weekly jobless figures