Dear Reader,
The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.
Nobody is blinking in this game so far. The Federal Reserve’s statement was a keenly awaited one, to see if it had a stronger message to send to nervous markets. The Fed’s projections acknowledge that conditions have improved compared to earlier. It now projects US GDP to grow at 6.5percent in 2021 compared to 4.2percent in its December estimate. While the 2022 and 2023 estimates have not changed much, they are on a higher base now. Similarly, unemployment estimates have declined while inflation estimates are looking up.
But the Fed remains committed to holding interest rates at near-zero levels for three more years, with expectations of a change in 2024 only. This is exactly what it has been saying earlier with the difference that its projections of growth have changed for the better.
Why is it still retaining an accommodative stance then? It said that sectors adversely affected by the pandemic remain weak and that inflation continues to run below 2percent. It maintains that the public health crisis poses a risk to the economic recovery. Its main target is to ‘achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent’.
The unknowns in the statement are what is ‘moderately’ and what is ‘some time’? But then you don’t expect the central bank to show all its cards.
What do the markets think of the Fed sticking to its guns despite the apparent consensus market view that the recovery and rising inflation call for a shift? US treasury bond yields did soften a bit and US equities did brighten up a bit, but if you look at the slippage due to the consensus of worry then even after yesterday’s statement they are still not taking the Fed at face value.
The main point of dissonance appears to be the Fed believing that even if there’s a surge in inflation this year it will be temporary, while the markets think it could be durable. That’s probably the main data point to keep a watch on, if you fear that an ebbing of liquidity could whack your portfolio hard. Here's a detailed analysis of the Fed's decision and what it means, from our research team. Read here.
A selection from today’s opinion section:
Martin Wolf writes: Economies can survive a stock market crash (republished from the FT)
The Indian market is ripe for SPACs
NHAI’s asset monetisation needs to be ramped up to allay fears on rising debt
Investing insights from our research team: Include this niche auto ancillary player in long-term portfolio
Defence stocks: An alpha for a defensive portfolio
What else are we reading today?
NFTs are the latest get-rich-quick scheme for the ‘cryptosphere’ (republished from the FT)
Let’s face it. Shortage of jobs is the real problem
Valli Arunachalam’s battle at Murugappa is for all the women of India Technical picks: HDFC, DLF, HDFC and KEC (These are published every trading day before markets open and can be read on the app)
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Cheers,
Ravi Ananthanarayanan
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