Union International: Asset values rallied after dovish comments from the Federal Reserve on the timing of interest rate increases.
Union International says that a hawkish tone from the US Federal Reserve over the timing of interest rate hikes was never an option as more negative economic data continues to show America’s economic recovery is steadily running out of steam.
Markets and investors has eagerly awaited the Fed’s guidance with expectations high that the word “patient” – used to describe the central bank’s attitude towards the eventual timing of any rate rise – would be left out of the statement. “The word was left out as expected but the Fed was quick to warn that the much-anticipated increase in the Fed Funds rate would not come at the next meeting of the Federal Open Markets Committee (FOMC) in April.
“The sentiment attached to that one word was already priced in to asset values,” explained Solomon Roth, chief economist at Union International “but the subsequent tone of Fed Chair, Janet Yellen’s post decision press conference hinted that the Fed was further off raising rates than the language used in the statement suggested.”
Indeed, Yellen indicated as much when she said, “Just because we removed the word patient from the statement, doesn’t mean we’re going to be impatient”.
Union International says that although the Fed was at pains to warn that neither low wage growth nor a strong US dollar would derail its plans to hike rates, it believes that worsening economic data on retail sales, housing and a worse-than-expected Q1 US GDP reading would likely see the central bank postpone until later in the year.
“They’re running out of time to preserve their credibility. The time to raise rates, if they’re going to do it, is now. The economic data isn’t going to improve as we move nearer to June; there’ll just be more reason not to do so as we move through the year,” concluded Roth.
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