Central Bank Action / Economic Growth

Good Morning Ladies and Gentlemen

 ”Just the facts, Ma’am.”
Joe Friday, Dragnet

Last Week’s “Stefan’s Weekly

Thank you for the feedback on last week’s edition of “Stefan’s Weekly”. Before getting into today’s topic, let me add another comment to last week’s discussion.
Politicians need to prioritise their service to the state, which encompasses the needs and interests of the citizens, rather than merely focusing on the task of educating the public. In my view, such educational responsibilities should predominantly be managed within families and schools, as they play a crucial role in shaping individual values and ethical perspectives.
I see the challenges faced by numerous politicians lie in their failure or reluctance to differentiate between moral-ethical and responsible-ethical frameworks. What do I mean by that? I believe that a well-intentioned action does not inherently translate into a beneficial outcome for the majority of the population. Even worse, when political actions lack genuine intent and are primarily motivated by the pursuit of electoral gains, in that case, they are likely to be unsustainable in the long term.

Central Bank Action

On Wednesday evening, the Federal Reserve announced its decision to keep the key monetary policy rate within the range of 4.25% to 4.5%. Market participants expected this decision, as traders had foreseen that the primary interest rates in the United States would remain stable at this level. As I noted in a recent edition of “Stefan’s Weekly,” due to base effects, inflation in the U.S. is likely to decrease significantly in the coming months, paving the way for potential interest rate cuts.
Yesterday, it was the turn of the European Central Bank (ECB). European monetary authorities are steadily proceeding with interest rate cuts. In light of the economic slowdown and reduced inflation concerns at the beginning of the year, the ECB has decided to further lower its key interest rate. Thus, the ECB Governing Council resolved to decrease the deposit rate, which significantly influences the financial market, from 3.00% to 2.75%. Again, this was widely expected by market participants.

U.S. Economic Growth

In the United States, possible mass unemployment resulting from recently announced layoffs in the public sector, prompted by actions from the newly appointed government, may hinder economic growth prospects. The service sector has become the primary engine of the U.S. economy in recent years. If the ISM services index reflects a sluggish trend in the coming months, the U.S. services sector could begin to lose momentum, which would subsequently affect overall economic growth.

German Economic Indicators

In Germany, both the ZEW Index (ZEW | Latest news from ZEW – Home | ZEW) and the Ifo Index reflect a modest improvement. Notably, the ZEW Index, which previously indicated a dire economic situation, showed a slight uptick in January from -93.1 to -90.4 points compared to December. The assessment in December had fallen to a level typical of situations from which recoveries usually begin or at least stabilise. January could signify a positive first step. The ifo (ifo Business Climate Index for Germany | Survey Series | ifo Institute) business climate index for Germany also experienced a modest increase, rising to 85.1 points. Notably, the current situation component recorded an advance of one point, reaching its highest level since August 2024. The lowest value for the current situation was observed in November. Despite the prevailing pessimism in expectations, these developments suggest a potential stabilisation of the business climate. I would not be surprised to see that these initial signs of hope will further emerge in Germany during the early months of 2025, as I believe the situation is unlikely to deteriorate further.

To Sum IT Up

The European Central Bank and the United States Federal Reserve have acted in accordance with prevailing expectations within the financial community. Furthermore, there appears to be a potential sign of optimism regarding the economic outlook for Germany. However, the prospect of layoffs within the public sector in the United States may adversely affect short-term growth trajectories.

I think 2025 promises to be another interesting year for financial market participants.

Ladies and Gentlemen

As always, please share your opinion with me. Feel free to send your messages to smk@incrementum.li.

Many thanks, indeed!

I wish you an excellent start to the day and weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li