The Fed’s Interest Rate Decisions and US GDP Releases

27 Jan 2021 Written by: Redaksi OCBC NISP

This week is quite an important week for global stock markets, where investors will look forward to the Fed's decision to determine its monetary policy, as well as the release of US economic growth in the fourth quarter of 2020.

The event will also be a catalyst for regional and domestic stock markets since the US is the country with the largest economy in the world. The Fed meeting this January is the first time since Joe Biden took office as US President and the Democrats took control of the Senate.

Of course, the market is waiting for the testimony of the Governor of the Fed, Jerome Powell, which will provide an overview of the future prospects for the US economy, amid various accommodative fiscal and monetary policies. Especially with the 10-year US treasury yields currently above the 1% level, which made investors expect that the Fed will reduce bond purchases this year.

On the other hand, the US Quarter IV - 2020 Gross Domestic Product (GDP) will be released on Thursday. In the third quarter of 2020, the US economy expanded by 33.4%, after recording a contraction of -31.4% in the second quarter. For the fourth quarter of 2020, Bloomberg consensus estimates that the US economy will grow by 4.2%. The increase in COVID-19 cases, which have not shown a decline, still affects people's weak purchasing power, where public consumption has a major role in supporting US GDP.

Investment Strategy

The Fed's policy, which is expected to keep interest rates at a low level, as well as a commitment to support the US economy with various accommodative policies have the potential to provide positive sentiment for risky assets such as the stock market. On the other hand, the planned stimulus package for US President Biden is also expected to not only boost US economic recovery, but also have the potential to increase foreign investor interest in emerging market countries, including Indonesia. Therefore, the weakening in the stock and bond markets can be used as a momentum to do an accumulation again.

Source: BLOOMBERG, CNBC, CNN

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