Economists polled by Bloomberg expect Fed officials next week to signal the first rate hike in more than three years in March and to begin shrinking the balance sheet shortly thereafter. Most of the 45 economists polled predict the Fed will use its Jan. 25-26 policy meeting to herald a 25-basis-point rate hike, but two expect a surprise 50-basis-point hike in response. Soaring price pressures - this will be the biggest rate hike since 2000. The survey was conducted from January 14 to 19. For the number of Fed rate hikes in 2022, the number of economists forecasting 3 and 4 times is basically equal. The Federal Open Market Committee will begin its two-day meeting next Tuesday and will issue a policy statement in Washington on Wednesday at 2 p.m. ET. Quarterly economic and interest rate forecasts will not be released at this meeting. Federal Reserve Chairman Jerome Powell will hold a news conference in 30 minutes.

As the coronavirus pandemic enters its third year, the International Monetary Fund has cut its forecast for world economic growth this year, citing weakening growth prospects in the United States and China and persistently high inflation.

The Biden administration has concluded that a global semiconductor shortage will continue through at least the second half of the year, putting long-term pressure on numerous U.S. companies, including automakers and the consumer electronics industry. U.S. officials plan to investigate allegations of price gouging in chips used by auto and medical device makers, Commerce Secretary Gina Raimondo said on Tuesday. Discussing the Commerce Department's industry survey results with reporters, she said, "We are still quite some distance away from getting out of the woods because it has to do with semiconductor supply issues". The report, which is based on more than 150 companies from the chip supply chain, shows that "there is a serious and persistent mismatch between chip supply and demand, and the companies surveyed believe these problems will not disappear in the next six months." Despite months of efforts by the Biden administration to ease supply shortages, the semiconductor supply chain remains fragile, the report said. "Demand continues to far outstrip supply."

Traders are actively participating in this week's U.S. Treasury auction, as was evident in Tuesday's release of the $55 billion 5-year Treasury note. Primary dealers' allocations hit a record low on strong demand from indirect bidders, whose allocations were the highest since September 2017. In addition, the winning bid yield also showed strong demand, more than 1 basis point lower than the pre-issue yield. Indirect bidders won 68.7% this time, much higher than the average allocation ratio of 60.4% in the previous six tenders. This category of bidders includes foreign central banks bidding through the New York Fed. A large portion of Monday's $54 billion 2-year Treasury bond issue was also given to indirect bidders, and the winning bid yielded a lower-than-expected yield.

Although China's Two Sessions set the tone for a proactive fiscal policy in early 2021, the actual implementation of the policy seems to have been compromised, which economists believe is one of the important factors behind China's economic slowdown in the second half of last year. National general public budget spending in 2021 will be 24.63 trillion yuan, up 0.3 percent year-on-year, according to data released by Chinese Vice Finance Minister Xu Hongcai at a news conference on Tuesday afternoon. That spending grew at the slowest pace since at least 2003, according to Bloomberg calculations. Xu Hongcai also said that the national general public budget revenue in 2021 will be 20.25 trillion yuan, a year-on-year increase of 10.7%. According to Bloomberg's calculations, the gap between general public budget expenditure and revenue in 2021 will be about 4.4 trillion yuan, the smallest since 2018, and narrowed by nearly 2 trillion from the previous year. "According to the budget passed at the beginning of last year, the generalized deficit rate should be 8% of GDP. After today's data comes out, the general public budget is already significantly lower than the budget level, and the actual implementation of the generalized deficit rate may not even reach 5.5%."

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