The Fed and the bounce back

Posted by: Paul Donovan

04 Mar 2021

Daily update

  • Today is world books day in the UK. It would be very wrong of me to use a UBS platform to promote the works of any single author, even if those books cover such vitally important economic topics as sustainability, inflation, prejudice and labor markets.
  • Fed Chair Powell is set to speak. However, Fed Governor Brainard, who is an economist, pre-empted the remarks with comments yesterday, emphasising how far the Fed is from its policy objectives. Self-evidently the Fed is a long way from its desired employment and inflation levels. One challenge is that economic data has continually surprised positively, and while investors accept the target gap, there may be uncertainty about how quickly the gap will close.
  • One of the strongest surprises has been the bounce back in parts of the global labor market. The service sector remains an area of employment weakness, and this will be the focus as consumption starts to focus on services once again. US initial jobless claims will be a focus for investors today (Euro area unemployment less so).
  • US factory orders data is due. Although global manufacturing has recovered to pre-pandemic levels, the US has lagged in that recovery and manufacturing output is still below 2019 levels.

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