The Week in Review
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- Positive economic outlook boosts the S&P500 to record highs
- Federal Reserve recommits to maintaining ultra-loose monetary policy
Over the past week, a number of events and comments impacted the financial markets. On the forefront this week was the IMF global forecast for 2021 and the FOMC minutes released for the last meeting of the committee in mid-March. The International Monetary Fund (IMF) released, on Tuesday, its World Economic Outlook. The IMF projects that global growth is to reach 6% in 2021 and 4.4% in 2022. According to the report, the US is expected to lead the global economic recovery with its GDP projected to rise to 6.4%, revised upward from 5.5% in January.
A day before the economic report was published, US Secretary of Treasury Janet Yellen called for a global minimum corporate tax rate. In her first major address as Treasury Secretary, Ms. Yellen made the case for President Biden’s plan to raise US corporate taxes to fund the proposed $2.3tn infrastructure plan. Janet Yellen’s proposal aims to convince other countries to level the expected higher tax rate in the US, which would be revised from 21% to 28% if the plan passes in its current form. The passage, however, remains largely uncertain and has already faced opposition by Senate Democrats. The big-ticket infrastructure plan is yet to enter heated negotiations.
The Federal Reserve Committed to the Economy
Other major events that unfolded this week include the release of the FOMC minutes from the committee’s March meeting. According to the minutes released on Wednesday, the Federal Reserve vowed to maintain the current accommodative monetary policy unchanged. The Fed reiterated that it will continue its $120bn a month asset purchase program since it provided “substantial support to the economy”. The Fed also vowed to keep interest rates unchanged near zero through 2023.
Furthermore, the central bank upgraded its economic growth projections for the US to 6.5% this year, revised higher from the 4.2% economic expansion anticipated in December. The Fed also sees an improvement in the unemployment rate to 4.5% by the end of the year. The current unemployment rate stands at 6%. On Thursday, Fed Chairman Jerome Powell appeared in a virtual IMF panel where he discussed the current state of the economy and the Fed’s role in it. Mr. Powell commented that the Fed remains committed to providing help for as long as it takes, at least until the economy fully recovers from the pandemic.
Propelled by the positive growth outlook, the US stock market kept pushing higher as the S&P500 consecutively closed at record highs. The Dow Jones Industrial Average and the Nasdaq Composite also moved up throughout the week and all three benchmark stock gauges ended the week in positive territory.
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