According to analysts from Danske Bank, the decision and the statement from the Federal Reserve, was a very dovish message to the markets.
“As widely expected, the Fed maintained the Fed funds target rate unchanged at 0.25%- 0.50% (Kansas City Fed’s George dissented and voted for a hike). The projections and statement revealed a very dovish Fed, which was a relatively big surprise as we have seen an improvement in US data, a rebound in risk sentiment and higher-than-expected inflation prints recently. These three factors explain why we thought that Fed would be relatively hawkish and why we saw a repricing of the Fed in the markets in the days up to the meeting. Clearly, the Fed has signalled that it wants to avoid tightening too much, too quickly.”
“The median ‘dot’ for this year was lowered down to signalling two hikes (down from four) as the Fed thinks that ‘global economic and financial developments continue to pose risks’.”
“While the door is not yet closed for a hike in June, we (and so do the markets) think the probability has declined significantly after the meeting. Thus we stick to our view that the Fed will keep on hold until September and only hike once this year, although we admit that it still seems more likely that the Fed will hike twice this year than not hike at all at the moment. The reason why we stick to our view is that it seems that the Fed is reluctant to raise rates too much, too quickly and thus the Fed would rather postpone the hike further than tighten prematurely.”
“More dovish central banks globally bode very well for global FI markets.”
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