Fed forecasts should help calm markets in 2012, predicts Swiss Re Chief Economist, Kurt Karl
25 January 2012, New York
After today’s decision by the Federal Reserve to maintain the target fed funds rate at zero to 25 basis points, Swiss Re’s Chief Economist, Kurt Karl, commented: “Weak economic activity, moderating inflation and fiscal tightening will keep the Fed on hold through mid-2013, perhaps longer.”
Karl added: “Since last summer, the US economic prospects have proved to be resilient to the euro debt crisis. Growth continues, though still at a fairly moderate pace. Headline consumer price inflation has eased from 3.9% year-over-year in September to 3.0% in December. Fiscal stimulus will be weaker this year than in 2011, so growth is unlikely to accelerate substantially this year. Nevertheless, vehicle sales and residential construction, particularly of multi-family homes, will support growth this year. The euro debt crisis, coupled with Operation Twist, has bolstered demand for long-term Treasuries. In addition, the new set of forecasts from the FOMC members should help calm markets and provide guidance on expected future Fed policies. As a consequence, we have lowered our forecast of yields on the 10-year Treasury note to 2% - 2.5% by end-2012."
He continued: “In Europe, further steps continue to be taken to contain the crisis and stabilize the situation. This has been, encouragingly, sufficient to lower yields on Italian and Spanish government bonds from recent peaks. However, the problems are far from solved and it will take more time to implement needed structural and fiscal reforms. Despite some improvements, the Euro Area is most likely currently in recession. In the UK, fiscal policies continue to restrain growth and a mild recession now looks likely. On the other hand, Japan’s economy is recovering from the tsumani, so will support the global economy this year with real GDP growth of 2.2%. China's recent shift to expansionary monetary policy may have already begun to pay off, with Q4 growth a bit stronger than expected. Growth this year is expected to be 8.5%, lower than last year, but still robust.”
Notes to editors
The Swiss Re Group is a leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Dealing direct and working through brokers, its global client base consists of insurance companies, mid-to-large-sized corporations and public sector clients. From standard products to tailor-made coverage across all lines of business, Swiss Re deploys its capital strength, expertise and innovation power to enable the risk taking upon which enterprise and progress in society depend. Founded in Zurich, Switzerland, in 1863, Swiss Re serves clients through a network of 56 offices globally and is rated "AA-" by Standard & Poor's, "A1" by Moody's and "A" by A.M. Best. Registered shares in the Swiss Re Group holding company, Swiss Re Ltd, are listed on the SIX Swiss Exchange and trade under the symbol SREN.
The material and conclusions contained in this publication are for information purposes only and the author offers no guarantee for the completeness of its contents. The statements in this report may provide current expectations of future events based on certain assumptions. These statements involve known and unknown risks, uncertainties and other factors which are not exhaustive. The author of this report undertakes no obligation to publicly revise or update any statements, whether as a result of new information, future events or otherwise. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of this publication.
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