The Week Ahead
While this week's economic calendar is packed with important data releases, all eyes will likely be on Washington for Wednesday's FOMC meeting, as well as President Biden's first address to a joint session of Congress.
The April FOMC meeting should primarily serve as a barometer check of the economic recovery relative to the substantial forecast upgrades the Committee unveiled at their last meeting in March. With only a few modest revisions to the statement anticipated, mainly reflecting recent solid data and the impending leap of year-over-year inflation readings above 2%, Chair Powell's press conference should be the highlight of the meeting. He’s likely to continue his subtle shift in tone about the outlook in a more promising direction – for example, his reference to the economy being at an "inflection point" in his prepared remarks and in response to questions during the presser.
That said, with still significant gaps in the labour market and the Committee focused on attaining actual rather than forecasted progress, the FOMC will still want to see "a string" of robust data before signalling a tapering timeline. Thus, while we expect these discussions to heat up during the summer, April is too soon to return to taper talk.
On the fiscal policy front, President Biden will make his first address to a joint session of Congress on Wednesday evening where he’s expected to flesh out his administration's infrastructure plans in greater detail.
Recall that Biden's initial infrastructure push for roughly $2.25trn ($2.65trn if tax credits are included) was to be paid for with corporate tax increases. While the dollar value of this next phase of "human infrastructure" priorities is unknown at this point, the administration has signalled that it would be paid for with individual income tax increases, including capital gains tax reforms. To be sure, the details and timing of these infrastructure investments and tax reforms will have a significant impact on the medium-term economic outlook.
Concerning the near-term outlook, this week's data docket will provide a good snapshot of how the economic recovery progresses as vaccinations accelerate and restrictions on activity are rolled back.
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Investors are still digesting the latest statements from the US central bank, which surprised markets with a far more hawkish stance than expected