Two views on the Federal Open Market Committee tonight from the southern hemisphere
- Following the BoJ and ECB’s meetings last week, this week sees the first meeting of the FOMC for 2018. It will also be Chair Yellen’s last.
- The January meeting is a simple affair, the decision statement the only method of communication. Since December, a weaker US dollar; little change in term interest rates; and the passing of tax reform all warrant greater short and medium-term optimism over the outlook.
- Due to the above factors, we have revised our expectations for the FOMC.
- We look for 25bp hikes at the March; June and September meetings. At that point, the fed funds rate will be above neutral and the balance sheet unwind in full effect. This will be an appropriate time to pause and assess.
- Monetary policy is unlikely to be a catalyst for a shift in sentiment towards the USD.
- This week’s Fed meeting (Yellon’s last as Chaired) won’t be accompanied by a press conference or a forecast update and should, in our opinion, be a non-event.
- The Fed hiked rates only last month and, importantly, there hasn’t been any macro release since that could have shifted the outlook for growth or inflation.
- Further, we think officials will be reluctant to introduce big shifts in the statement, to avoid constraining Powell ahead of his first FOMC meeting as Chair in March. F
- ed talk will be important to watch, though, especially any comments about USD weakness and what that means for the inflation outlook (and the Fed’s rate path).
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