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Of course the most important event of the week was the US Federal Open Market Committee meeting, where the situation in the economy was analysed and further interest rate actions were discussed. On Wednesday the results of this meeting were announced, which confused the markets a bit, which strongly affected many assets, and in particular the movement of S&P500 index.
S&P500
In this meeting it was very important not to scare the markets off and bring them down like Ben Bernanke did in his time. After the dramatic announcements of a reduction in quantitative stimulus, the market collapsed by 10% quite quickly. The same mistake could not be made now. Fortunately the commission remembers all its blunders.
Everybody was waiting for this meeting, for the US Fed to clarify plans for the future, as well as to show its strength and control over the situation. According to the results of the report, inflation in the USA has accelerated so much that it simply could not be ignored. Inflation forecasts rose by 1 basis point to 3.4% by the end of 2021. In this situation, the commission had to revise its forecast for an interest rate increase. Members now believe that the rate will be raised twice by the end of 2023, but when this will be done will be decided later depending on the situation.
The growth of the US economy will be the main parameter in decision-making. It will determine when rates will be raised and when the quantitative easing programme will be phased out.
There are a few things to note from the press conference. It was on a positive note. Powell said that so far they are watching closely what is happening in the economy and analyzing all the parameters. Decisions will be made later, when they are sure of that. So far they are not going to curtail the program and continue to buy assets.
The results of this meeting were mixed, but that’s exactly what the market needs right now. They hinted that they should be cautious and wait. Summer is holiday time. No one wants to spend it in deep contemplations about the investment future, therefore, most likely, in summer the Fed will not make any loud statements, and will wait until autumn. During the summer the situation will normalise and the major indices may even try to make new highs. The best part will start in autumn, when the heated inflation and the economy will start to be extinguished a bit.
05.00 Bank of Japan interest rate decision and press conference
08.00 German producer price index for May
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