Central banks provide key support
Fed Remains Accommodative
The Fed will continue to provide important support to the U.S. economy via its bond-buying program and easy monetary policy. Although we believe unemployment will continue to slowly recover, we expect it to remain uncomfortably high for the Fed. This dynamic, coupled with the Fed’s desire to raise inflation expectations, should ensure monetary policy remains accommodative well into 2022. Additionally, as long as rising interest rates remain a byproduct of improving economic conditions, we don’t expect the Fed to intervene.
Policy Stays Unchanged in Europe, U.K.
European Central Bank (ECB) officials remain in “wait and see” mode, calculating that downside risks should moderate due to widespread vaccine distribution campaigns and improving growth outlooks. Similarly, the Bank of England is keeping its stimulus plans intact, but policymakers signaled they may cut rates further (into negative territory) if vaccine rollouts fail to improve the economic outlook. We expect central banks to use every policy tactic available to support their countries’ economies.
China Maintains Stimulus
Despite China’s relatively robust economic recovery, People’s Bank of China officials are unlikely to unwind the monetary stimulus launched in early 2020, including two interest rate cuts. Risks to China’s growth, including onshoring trends, muted global growth and weak domestic demand, should keep corporate and household interest rates unchanged in the near term.