Spreads and predictions in ECB and Fed "blackout" week

Inflation will not be the main criterion for the Fed. Inflation will be allowed to rise for a period, and we will watch consumer inflation above 3% for a period.

Inflation will not be the main criterion for the Fed. Inflation will be allowed to rise for a period, and we will watch consumer inflation above 3% for a period. On the one hand, the general recovery of the economy is monitored, because the acceleration of the money cycle in the economy at the moment will not only be due to the temporary effect of the Biden packages, but to the increase in employment due to the return of businesses to the field. The recycling of employment will further improve the situation of individuals in terms of permanent and continuing income impact. The positive divergence in terms of vaccination is the main factor in the USA's lead in recovery.

 

Therefore, Europe, which lags behind the USA as the economic recovery momentum vaccination remains at a low percentage, must once again correct the situation related to the epidemic and increase the vaccination percentage. The negative effects of social restrictions on the economy continue to be monitored. However, if the vaccination is accelerated, the recovery will proceed proportionately.

 

At the previous meeting, the ECB had made a strategic tweak and increased the speed of their bond purchases. However, the overall size and ultimate purpose of PEPP has not changed. There's no need to go into a new spread adjustment either, as the American-German yield spread has declined with the recent decline in US yields. The condition of the returns is more controlled and there is no extra inflation pricing. Inflation breakevents even came down a little. In this respect, there will be no new action from the ECB meeting. I'll cover it in detail tomorrow in the ECB preview report.

 

The blackout week in which the members were silent before the Fed in the USA… On the Fed side, it is important how the period of economic recovery will bring the Central Bank to QE tapering communication. Communication can be made in the foreseeable future, possibly within this year, since the interest rate hike foreseen in 2023 will be brought forward and the balance sheet will be tightened before that.

 

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