The Day at a Glance | August 5 2021

The Top

*FED Vice Chair Richard Clarida is in favor of starting to withdraw stimuli at the end of 2021.

*Bank of England warns that it`s necessary to restrict monetary conditions due to a rise in inflation.

*CBO will analyze the infrastructure investment package proposed by US legislators to assess whether it will increase the fiscal deficit or not.

Economic environment

The Federal Reserve`s Vice Chair`s stance surprised markets. In a speech given yesterday, Vice Chair of the Federal Reserve Richard Clarida pointed out that the FED is closer to reaching monetary normalization than what was suggested in the FED`s last statement. Clarida assured that if inflation and the economic recovery both continue to progress the way that they have, necessary conditions to increase interest rates could be seen at the end of 2022. Additionally, he assured that the economy has moved forward enough for the withdrawal of the asset purchasing program to begin in December of 2021. The Vice Chair confirmed that the FED will continue to assess the economy`s performance before carrying out any definitive actions and that it will send clear messages regarding the withdrawal of stimuli through its statements. Lastly, he considered that if underlying inflation reaches 3% this year, the increase in prices will start to raise concerns. The news caused the dollar to appreciate – as well as long term US market interest rates as his comments as Vice Chair of the FED carry more weight than those made by other members of the Federal Reserve. Kaplan, of the Dallas FED, and Daly, of the San Francisco FED, backed Clarida`s comments and agree that the withdrawal of the purchasing program should begin at the end of 2021 or start of 2022.