FOMC: We expect monetary status quo - BNP

Alexandra Estiot, Senior economist BNP Paribas explains that Brexit fears have eased and the Federal Reserve seems to be more worried about job market trends.

Key Quotes:

“The Fed is expected to leave its monetary policy unchanged again. After a few days of severe turmoil, the financial markets have levelled off, resulting in an easing of US monetary and financial conditions.”

“Financial markets regained their calm, but the rebound in oil prices came to a halt, postponing the date at which inflation will move back towards target. Prospects for growth, and the way the Fed sees them, are as dependent as ever on the labour market.”

“Brexit seems to have left the US unscathed, at least for the moment. If the only reason for the June decision to maintain the monetary status quo had been the uncertainty that prevailed prior to the referendum, then we could be virtually guaranteed of a July rate increase. Yet this was not the case.”

“The UK’s rapid and apparently serene transition of power, as well as the stabilisation of Sterling’s external value, are very encouraging. What seems to be worrying the Fed even more are job market trends.”

“The Fed probably wants to move away from the zero lower bound as quickly and as far as possible. Yet the persistent risks associated with a premature tightening of monetary policy also call for caution. If the good news is confirmed by September – and accompanied by another reduction in underemployment – then it could create a window of opportunity for a key rate increase.”