March FOMC: 'Risk Averse'; Keeping Our Call For No-Hikes This Year Intact - BNPP

On balance, the Fed’s communication was more dovish than expected, with a weaker tone on growth, but hints of a bit more concern on inflation. The “dots”, which indicate the Committee’s assessment of how many rate hikes might be justified this year, moved further south and east than the market and we had expected, with the median dot showing only two hikes this year, down from four in December 2015.

Following weaker-than-expected retail sales data for February, this gave further support to our forecast of no rate hike in June, or indeed for the rest of the year.

The market’s pricing of the probability of a rate hike in June fell and considerably-more cold water was poured on the idea that an April hike could be delivered. In terms of the economic outlook, investment was downgraded to ‘soft”, after having been seen as increasing at a moderate pace in January. It appears that the Fed’s concerns about global conditions affecting the US have increased. In December, global economic and financial developments were something it was monitoring closely. Now these factors appear in the first paragraph about current economic developments and also in the second, forward-looking, paragraph, where they were said to continue to “pose risks.”

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