Bouncing back—obviously

Posted by: Paul Donovan

29 Apr 2021

Daily update

  • The Federal Reserve did nothing on policy—obviously. There was recognition that the economy is doing better than expected—obviously. Fed Chair Powell said it was not time to talk of scaling back bond buying—not obviously. The Canadians are scaling back, the British probably will scale back, and market economists are quite animated (for economists) about when the Fed should scale back.
  • The Fed was dismissive of inflation threats, as it should be. The inflation rate for most goods and services has been stable in the US. Investors would be unwise to base decisions on an aberration in the oil market that took place a year ago.
  • US first quarter GDP should show a robust economic bounce-back. The bias to such data is to surprise positively, with positive revisions to past data. The US economy was gradually opening up in the first quarter, and there were stimulus cheques to be spent. Where the cheques were spent (rather than speculated on Reddit induced equity trades), there would have been a boost to the economy.
  • We have Spanish and German consumer price inflation for April, and of course oil base effects will push the year-on-year rate skywards like a startled pheasant. Underlying inflation pressures are subdued.

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