FED Chairman Powell just mentioned inflation is costing volatility in the markets. “We expect that as the economy reopens and hopefully picks up, we will see inflation move up through base effects. That could create some upward pressure on prices. Raising interest rates would require the economy to get back to full employment and inflation to hit a sustainable level above 2%”, Jerome Powell said during a Wall Street Journal conference.
FED Chairman Powell doesn’t expect either to happen this year.
“There’s just a lot of ground to cover before we get to that,” he said. Even if the economy sees “transitory increases in inflation … I expect that we will be patient.”
The Fed currently is buying $120 billion a month in Treasuries and mortgage-backed securities. At some point, the FED will have to taper the bond-buying program. That’s why whenever the market participants see a potential for rising inflation they see a higher probability for the FED to taper their QE program sooner rather than later. The markets will get a fresh look at the inflation picture on Wednesday with the latest numbers on Inflation Rate MoM FEB and Core Inflation Rate MoM FEB from the USA.
Meanwhile, the Senate passed Biden’s $1.9 trillion stimulus bill, sending the bill to the House, which plans to vote on the Senate legislation Tuesday so that President Joe Biden can sign it into law early in the week.
The latest stimulus package is raising concerns about the potential for overstimulating the economy. The potential for a hot red economy will lead to inflation, which is making the investors nervous.
The focus for the weak ahead is on the ECB and Bank of Canada interest rates decisions and their press-conference.
Have a happy, positive, and profitable week ahead!