The Federal Reserve is facing the conundrum of dual mandate progress but no economic growth, and this may be showcased again next week in book-ended fashion that starts the week with dovish overtones and possibly ends it with Treasuries offered. With the US economy looking like it is on track to post very little if any economic growth over the entire first half of 2015 and following soft growth at the end of 2014 against the expectations of all major forecast shops, more Fed officials are likely to talk down near-term rebound hopes. A zero-growth backdrop could well make them uneasy about further near-term progress on the dual mandate and wary of raising interest rates if at all this year, notwithstanding Chair Yellen’s guidance. Simply put, the US economy was universally expected to rebound strongly in Q2 and so far it is not. Policy caution should therefore follow uncertainty over why this has been the case and that same caution could be reflected in several central bank announcements over the next week including the ECB, BoE, and central banks in Mexico and Brazil. It is a tad ironic that we have swung from the Fed’s concern over international risks toward a decent case for other economies to be worried about weak US growth as their own economies often post somewhat better numbers.
The material has been provided by InstaForex Company – www.instaforex.com