The Federal Reserve (Fed) is likely to reiterate its commitment to prolonged monetary accommodation at this week’s Federal Open Market Committee (FOMC) meeting. Uncertainty surrounding the pandemic’s near-term course and signs of weakening labor markets suggest recent taper talk by Fed officials is still premature.
This week’s economic data is highlighted by the release of fourth-quarter gross domestic product (GDP) and personal consumption expenditures (PCE) inflation data — the Fed’s preferred inflation gauge. The reflation trade took a pause last week, with bond yields settling into a narrow trading range. However, with the Biden administration pushing hard for additional fiscal stimulus and continued ramping up of vaccine distribution, allowing for gradual reopening of the U.S. economy, we expect interest rates to resume their move higher.
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