22 September, 2016
“We trust the economy, yet not enough to tighten monetary policy” this was the message sent by Chair Janet Yellen to markets on Wednesday to explain the motives for keeping rates on hold in September.
Although the monetary policy decision was viewed as dovish which sent equities higher across the board and the dollar lower, the Federal Reserve has never been seen as divided so far this year.
Three out of the ten voting members dissented against the decision, calling for an immediate rate hike, this made the call for a December rate increase much stronger. Although Yellen confirmed that a November meeting is a live one, her body language didn’t really reflect high confidence and neither markets did buy it with only 12% priced in for a move in November.
Key takeaways from the Fed’s decision:
Major changes in statement: “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” A strong signal that a move will come by December.
Dots continue to fall: The “dot plot” used by Federal Reserve members to mark their expectations for the path of interest rates showed 25 basis points increase by end of year, but more interestingly projections were scaled down in 2017 and over the longer run, suggesting a new normal for interest rates. In 2017 expectations are now for two rate hikes instead of three, and to reach 2.9% on the longer run versus 3% in June’s projections.
Growth scaled down: Growth expectations were trimmed by 0.2% in 2016 to 1.8%. Remarkably, the 2% magical number is hard to reach on the longer run too, with medium forecast falling to 1.8% from 2%.
Equities rise, yields slump
Markets received a boost today with Asian and European equities following Wall Street higher after Nasdaq Composite closed at a record high. European bond markets also got a lift with yields dropping across the curve. Yields on German 10 year bonds fell back into negative territory, while UK bonds among the best performers with yields on 10, 15 and 30 years gilts falling more than 7 basis points.
U.S. President Trump moved forward with imposing 10% tariffs on $200 billion of Chinese imports effective next week. Trump's move has obviously...
Emerging market currencies have been treated without mercy by a broadly stronger Dollar, yet again. The Dollar Index appreciated to its highest level this year...
Repeated signs of easing inflationary pressures in the United Kingdom could plant a seed of doubt among investors about whether the Bank...
Asian equities fell on Tuesday after Oil prices tumbled by more than 4.6% during the previous session, following reports that Saudi Arabia has offered...
US inflation figures were the main focus today for the US economy, as it saw CPI lift in line with expectations to 0.2% m/m. Well this is not a strong hawkish signal...
A fresh wave of risk aversion swept across financial markets after the United States threatened to impose tariffs on an extra $200 billion worth of Chinese goods...
Trade frictions dominated the headlines last week, but Wall Street investors shrugged off worries of an escalating trade war and instead cheered...
Confirmation in the early hours of Friday morning that President Trump will impose tariffs on Chinese imports starting today is likely to take attention away...
Oil markets have been focused on the OPEC meeting happening at present which is likely to wrap up tomorrow and give some serious insight into OPEC...