18 Dec 2014
FOMC policy statement reflects a confident Fed - DB
FXStreet (Barcelona) - Gael Gunubu of Deutsche Bank notes that overall the FOMC statement and press conference reflected a Fed confident they can start normalising soon as and when data supports it, further observing that the statement led to higher yields, stronger dollar and pushing S&P 500 higher.
Key Quotes
“A big part of our outlook is that central banks still hold all the power in financial markets as they have done for several years. It was the Fed's turn last night to demonstrate this as the S&P 500 (+2.04%) had its biggest day of the year.”
“Net-net they probably gave something for both the doves and the hawks and a lot now seems to depend on whether inflation stays low or gravitates back towards 2%. If it’s the former then rates are unlikely to rise in 2015 and if it’s the latter then the Fed will want to raise rates.”
“Running through the statement itself, much of the focus was on the ‘considerable time’ language which, whilst not removed, was replaced with ‘patience’ in regards to timing of the first rate hike.”
“Yellen followed this up in the Q&A shortly after by saying that ‘the timing of the initial rise in the fed funds target as well as the path for target thereafter are contingent on economic conditions’.”
“More pressing was perhaps the news that ‘it is unlikely to begin the normalization process for at least the next couple meetings’ which in effect rules out the January-March period but potentially brings April into play should we see encouraging signs from macro data through early next year.”
“Dot points for the Fed Funds rate were lowered. The Median forecast now sits at 1.125% for 2015 (down from 1.375%) rising to 2.5% in 2016, down from 2.875% in the previous forecast.”
“Oil markets closed stronger with both WTI (+0.97%) and Brent (+1.95) firming to $56.47/bbl and $61.18/bbl respectively. Both grades traded some 5% higher intraday post-FOMC only to then pare those gains into the close.”
“Treasuries bounced around with the changes in sentiment. Benchmark 10y yields closed 7.7bps higher at 2.136%. The Dollar closed firmer, the DXY ending +1.14%.”
Key Quotes
“A big part of our outlook is that central banks still hold all the power in financial markets as they have done for several years. It was the Fed's turn last night to demonstrate this as the S&P 500 (+2.04%) had its biggest day of the year.”
“Net-net they probably gave something for both the doves and the hawks and a lot now seems to depend on whether inflation stays low or gravitates back towards 2%. If it’s the former then rates are unlikely to rise in 2015 and if it’s the latter then the Fed will want to raise rates.”
“Running through the statement itself, much of the focus was on the ‘considerable time’ language which, whilst not removed, was replaced with ‘patience’ in regards to timing of the first rate hike.”
“Yellen followed this up in the Q&A shortly after by saying that ‘the timing of the initial rise in the fed funds target as well as the path for target thereafter are contingent on economic conditions’.”
“More pressing was perhaps the news that ‘it is unlikely to begin the normalization process for at least the next couple meetings’ which in effect rules out the January-March period but potentially brings April into play should we see encouraging signs from macro data through early next year.”
“Dot points for the Fed Funds rate were lowered. The Median forecast now sits at 1.125% for 2015 (down from 1.375%) rising to 2.5% in 2016, down from 2.875% in the previous forecast.”
“Oil markets closed stronger with both WTI (+0.97%) and Brent (+1.95) firming to $56.47/bbl and $61.18/bbl respectively. Both grades traded some 5% higher intraday post-FOMC only to then pare those gains into the close.”
“Treasuries bounced around with the changes in sentiment. Benchmark 10y yields closed 7.7bps higher at 2.136%. The Dollar closed firmer, the DXY ending +1.14%.”