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In reaction to today’s US Federal Open Market Committee (FOMC) meeting, Lee Ferridge, head of Multi-Asset Strategy, Americas at State Street Global Markets; Antoine Lesné, head of EMEA strategy and research for SPDR ETFs; and Sophia Ferguson, senior portfolio manager for active fixed income and currency at State Street Global Advisors, offer their views.
Ferridge commented, “As widely expected, today’s FOMC meeting proved to be a non-event, leaving the door open to a September hike, which is 80 percent priced in by the market. These middle meetings, where there is no press conference and no change in the FOMC’s rate expectations “dots”, have become increasingly marginalized in recent years. This effectively leaves the FOMC with only four meetings per year at which they can realistically alter policy. This is one of the reasons why, from January 2019, Chairman Powell intends to hold a press conference after all FOMC policy meetings to allow the committee more flexibility in setting policy.”
Lesné commented, “Today’s meeting provided little insight, as it was not followed by a speech. September and December hikes are still on the cards based on futures’ based probabilities, but the market may still not be pricing in as many hikes in 2019 as the latest dot plots. For now, focus will turn towards employment and inflation. While both are strong they will unlikely overheat and the FOMC is not in a rush to accelerate the pace of hikes. This environment could still support the US dollar. Treasury yields may be more sensitive to the Bank of Japan announcement than the FOMC one, looking for potentially higher yields in the belly of the curve.”
Ferguson commented, “Within the Fed’s data dependent policy framework, the economic outlook remains sanguine enough to warrant a continuation – albeit gradual – to the tightening path. We expect the next rate hike to be in September, but will pay close attention to the evolution of forward guidance in August’s meeting minutes, particularly the discussion of the yield curve shape and financial conditions in the wake of implemented trade tarrifs. Should protectionist trade policies materially augment the longer-term trend in real activity, an adjustment to the Fed’s “slow-and-steady” mantra may be warranted.”
