Thursday, April 8, 2021

The Fed: Things are Looking Good

Minutes from the last Fed meeting saw FOMC members point to a brighter outlook for the economy, while agreeing to provide continued support via near-zero interest rates and large monthly bond purchases. Several of them even noted that the recent $1.9T pandemic relief package could improve the position of small businesses slammed by the pandemic, boost consumer spending and contain long-term damage to the labor market. That builds on the latest hiring surge in March, as well as an unemployment drop and business reopenings. 

Similar viewpoint: The outlook was echoed by Jamie Dimon, who estimated the coming economic boom could last until 2023. In his annual letter to shareholders on Wednesday, the JPMorgan CEO said strong consumer savings, huge deficit spending, more QE, expanded vaccine distribution and a $2.3T infrastructure plan could lead to a "Goldilocks moment" of fast, sustained growth alongside inflation and interest rates that drift slowly upward. The permanent effect of that growth will depend on the "quality, effectiveness, and sustainability of the infrastructure and other government investments," he added. "Spent wisely, it will create more economic opportunity for everyone."

Investors responded in kind, as the S&P 500 notched a fresh closing high of 4,079.95 on Wednesday. Stock index futures climbed further overnight, with contracts linked to the S&P 500 up another 0.4%, and the Dow and Nasdaq ahead by 0.2% and 0.8%, respectively. Further helping sentiment was a statement from the U.S. Treasury, which said Biden's tax proposals would generate about $2.5T over 15 years in an effort to pay for eight years of infrastructure spending.

On tap: Fed Chair Jay Powell speaks at an IMF event later today, where he is likely to share his views on the global recovery and monetary policy outlook. Investors will also be tracking the latest Labor Department update on the number of Americans filing for unemployment benefits for the first time. Economists expect the downward trend to continue given the rehiring across the economy, with first-time claims totaling 680K during the week ended April 3.

Note as of 8:30 am April 8:  In the week ending April 3, the advance figure for seasonally adjusted initial claims was 744,000, an increase of 16,000 from the previous week's revised level. The previous week's level was revised up by 9,000 from 719,000 to 728,000. The 4-week moving average was 723,750, an increase of 2,500 from the previous week's revised average. The previous week's average was revised up by 2,250 from 719,000 to 721,250.

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