Two Fed officials speak out against tightening monetary policy - 18.5.2021

Today, the US dollar index falls for the third day in a row. It has already dropped below the psychological level of 90 points. Two representatives of the Fed (Dallas Federal Reserve President Robert Kaplan, Federal Reserve Vice Chair Richard Clarida) synchronously announced that the current ultra-soft monetary policy should be maintained, since the American economy and the labor market have not yet recovered from the COVID-19 epidemic. This greatly reduced investor confidence in an oncoming increase in the Fed's rates or a reduction in money supply under the current program of bond purchases (quantitative easing). Recall that American inflation reached its maximum in April since the crisis year of 2008. The current inflation forecast for May is even higher, approaching to 5% in annual terms. The steady rise in consumer prices might become a powerful factor in the further weakening of the US dollar and an increase in the quotes of commodity futures. Today the US will release data on the housing market for April. The outlook is negative. Today's data on the British labor market unexpectedly turned out to be better than forecasted. This contributed to the strengthening of the pound.

On Monday, the US stock indices dropped slightly in the absence of significant macroeconomic data. For computer and IT companies, a negative event was the increase in the number of patients with COVID-19 in Singapore and Taiwan. AT&T and Discovery announced a merger of some of their assets with a goal of creating a separate, shared entertainment media business. After that, their shares fell in price by 6% and 5%, respectively. Today, futures for the US stock indices are growing amid statements by the Fed representatives on the need to maintain the current ultra-soft monetary policy. The German DAX index and the pan-European Euro Stoxx 50 index renewed all-time highs this morning.

World oil prices are rising today for the third day in a row. The main reason for this was the cancellation of the COVID-19 quarantine in Britain, as well as its mitigation in France and Spain. Portugal and the Netherlands have eased quarantine requirements for tourists. New York has canceled the mandatory wearing of face masks in public places. Investors believe that the massive Covid-19 vaccination and the lifting of quarantines will increase global oil demand. In particular, the Transportation Security Administration reported that passenger traffic at the US airports reached 1.85 million on Sunday. This is the maximum since March 2020 and may indicate an increase in jet fuel consumption.