US Federal Reserve (Fed) met two weeks ago on March 17. At the same time, we did not learn anything fundamentally new from the US central bankers. Fed Governor Jerome Powell reiterated that the US Federal Reserve will not raise key interest rates from the current zero level at least until 2024, saying that it is crucial for the Fed to achieve both its monetary policy goals of full employment and inflation at a sustainable level of 2%. At the same time, the Fed has significantly raised its forecast for US economic growth this year to 6.5%, mainly due to the unprecedented fiscal stimulus from President Joe Biden's administration. If this forecast is fulfilled, it will mean the fastest growth of the US economy in the last 40 years.
However, it should also be added that this growth will be almost exclusively financed by the new debt of the US federal government, i.e. a significantly increased issuance of US Treasuries. At the same time, it is also true that a large volume of newly issued government bonds will continue to be bought by the Fed as part of a quantitative easing program. It is therefore a question of the extent to which the growth of the US economy at this level will be sustainable in the medium term.
Michal Stupavský
Investment Strategist at Conseq Investment Management, a.s.