Fed to Retain Cautious Stance to Further Tightening - MUFG
Fed to Retain Cautious Stance to Further Tightening - MUFG
Lee Hardman, Currency Analyst at MUFG, expects the Fed to retain a
cautious stance towards further monetary tightening at tonight’s FOMC
meeting.
Key Quotes
“The Fed may
acknowledge that downside risks from global and financial market
developments have eased recently and sound less dovish than in March.
However, we doubt that the Fed will be confident to signal yet that it
is considering raising rates as early as the their next meeting in
June. As such we do not expect the Fed to judge that the risks are now
balanced/more balanced.
The weak start to the year for the US
economy will likely keep the Fed cautious about resuming rate hikes in
the near-term. The release yesterday of the latest durable goods report
provided further evidence that capital investment was weak in Q1
although likely dampened by the early Easter.
As the US was
faced with a drag from net trade and an inventory correction as well it
appears likely that the economy struggled to expand in Q1. The market
already appears to be looking ahead and expecting growth to rebound in
the coming quarters as US yields have been ticking higher after
bottoming in February.
The strength of the economic rebound in
the coming quarters will be more important in determining whether the
Fed resumes rate hikes later this year which would offer more support
for the US dollar. On that front it is encouraging that leading
indicators are tentatively improving as evident by the services PMI
which increased for the second consecutive month to 52.1 in April.”
