US FED STAYS PUT, OPTIMISTIC OUTLOOK

On a day when the US Treasury yields surged, the Fed tried to do its bit by keeping the rates near-zero, at least till 2023. This was despite the upgrade in the US economic outlook and worries of inflation rising.

In a Press Conference following the Fed statement, the Jerome Powell reiterated that majority of the committee gave a thumbs down to a rate increase and said that the time to talk about reducing the central bank’s asset purchase was not yet there. Thus these two statements calmed many frayed nerves – everything will be in a status quo mode till there is sustainable recovery and the pandemic is left behind us.

The Fed officials expect stronger economic growth, higher inflation and lower unemployment this year, vis-à-vis Dec’20. Their median projection showed the U.S. gross domestic product rising 6.5% in 2021, up from their December expectation of 4.2% and they expect unemployment to fall to 4.5% by year’s end v/s 6.2% in February. At each quarterly meeting, Federal Reserve officials have projected that the unemployment rate will fall more quickly and sooner – this means despite the rising cases in the US, they expect a more sustainable recovery this year. This is despite the news today that Toyota and Honda have shut factories as supply-chain problems are complicating production.

Post this news from the US Fed, though US 10-year Treasury Yields remained high, stocks, which had earlier tanked, bounced back into the green.

For the Indian markets, this will come as a relief – at least one uncertainty put to rest for now. The bias will turn positive though the overhang of the resurgence in Covid cases and rising oil prices, our own inflation spiking up will keep the markets volatile. Though what should come as a positive news is that advance tax collections for both corporate tax and income tax have turned positive at the end of fourth instalment which was to be paid on March 15. Further, the shortfall in net direct collection has reduced 4% v/s 9% in Jan and from around 13% when the 3^rd instalment of advance tax was paid on 15^th Dec.  Increase in advance tax for advance tax collection implies that corporate earnings have improved significantly.

The fiscal FY20 ends 12 days from now and all eyes will once again be on Q4 earnings and more importantly on RBI’s MPC meet scheduled from 5^th to 7^th April.

Well, for now, the Fed uncertainty ends and hopefully the market take a moment to rejoice that…..