24 to 30 August: Low(er) rates by the Fed for even longer

World industrial production continued to recover in June, when the volume of output grew 4.8% MoM, following the modest 0.8% MoM growth in May. Despite the strong monthly growth figure in June, the level of industrial activity was still down by 7.2% compared with the previous year. From a regional point of view, the Eurozone and emerging Asia contributed the most to the stabilisation. World trade, on the other hand, just turned a corner in June when the volume of trade rose 7.6% MoM. Therefore, it is safe to say that as long as economies remain open, world industrial production and world trade will get a chance to continue edging towards the pre-pandemic level.

Fed Chair Jerome Powell announced that the Federal Reserve will adopt aflexible form of average inflation targeting.’ In another major change, the Fed will now interpret its maximum employment goal as a ‘broad-based and inclusive goal,’ which means that rather than focusing solely on aggregate labour market metrics, Fed officials will scrutinise how low-income and minority labour market participants are doing. The Fed Chair – deliberately – did not use tight language and thus it will take some time for markets to fully understand how the new framework works in practice. In our view, Mr Powell sent a very strong signal to cement expectations for low(er) rates for a very, very, very long time.

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