Week in Review: Fed holds rates near zero

The Federal Reserve ramped up its economic expectations for 2021, according to the central bank’s Summary of Economic Projections released Wednesday. The central bank now expects real gross domestic product to grow 6.5% in 2021, compared with its 4.2% forecast from its December meeting. The Fed statement affirmed a near-zero interest rate policy at least through 2023, along with their confidence that any increase in inflation will be “transitory.” Fed Chairman Jerome Powell also emphasized that unemployment remained too high.

While the U.S. Federal Reserve kept its short-term lending rate steady, central banks in Brazil, Turkey, and Russia raised rates during the week to address growing inflation risks.

On the vaccine front more than 420 million doses have been administered across 133 countries. In the U.S. alone, 118 million doses have been given. In the last week, an average of 2.46 million doses per day were administered. At the current pace, it will take another 5 months to cover 75% of the U.S. population.

Energy stocks fell sharply over the week as oil prices saw their biggest daily drop since the summer, driven by rising U.S. inventories and demand concerns due to renewed lockdowns and the slow vaccine rollout in Europe.

Italy, France and Poland enforced new partial lockdown measures to slow a resurgence in coronavirus infections. In Italy, Mario Draghi’s new government imposed new travel restrictions and closed schools, restaurants and retail stores in most of the country. Italy was one of the first countries to enter into a nationwide lockdown nearly a year ago. While France, in the grip of a third wave, imposed a month-long lockdown on Paris and parts of the north.

On Thursday the European Medicines Agency announced that the AstraZeneca vaccine is safe, after several EU member states, including Germany, France, Italy, and Spain, suspended its use over reports of it causing deadly blood clots. Much of Europe has lagged behind the US and the UK in rolling out COVID-19 vaccines.

Global equity markets were marginally weaker this week with the U.S. Dow Jones Industrial Average (-0.46%), S&P 500 (-0.77%) and the Nasdaq (-0.79%) all ending lower. In local currency terms, the pan-European STOXX Europe 50 Index ended the week roughly flat, while the UK’s FTSE 100 Index declined 0.78%.

Chinese stocks also fell for the week, with the Shanghai Composite Index slipping 1.4%. Chinese stocks underperformed after negative headlines emerged following the first face-to-face meeting between U.S. and Chinese trade officials in Alaska. Japan’s Nikkei 225 Stock Average bucked the trend ending marginally positive for the week, returning 0.25%.

Market Moves of the Week

The Johannesburg Stock Exchange (“JSE”) ended the week in negative territory as the financial (-6.74%) and resource (-5.43%) sectors were sharply down on the week.

Fitch Ratings announced on Wednesday that South Africa’s economy is expected to expand by 4.3% in 2021 and 2.5% in 2022 as it continues on a path of moderate recovery from the Covid-19 pandemic. The ratings agency, which has a BB- sovereign rating on SA’s debt with a negative outlook, expects interest rates to remain on hold this year and inflation to end the year at 4.4%.

The rand strengthened to a three-week high at the close on Friday, to end the week at R14.72 to the U.S. dollar.

Chart of the Week

The Federal Reserve on Wednesday held its key interest rate near zero, continuing to forecast no rate hikes through to 2023. The projections of the Federal Open Market Committee (“FOMC”) members is illustrated in the Federal Reserve’s dot-plot projections chart above, with four of the 18 FOMC members looking for a rate hike at some point in 2022, compared with just one at the December meeting. For 2023, seven members see a rate increase, compared with five in the December forecast.