FXStreet (Barcelona) – The Investec Team offers their key observations regarding the rate hike outlook from the FOMC Meeting and Yellen’s speech, and further noting that the cautious outlook for rates was accepted by the markets with the USD weakening across the board.
Key Quotes
“The US Dollar has continued its pre-FOMC sell off since last night’s Federal Reserve (Fed) meeting, where Janet Yellen and her committee held interest rates and cited a continued need to adjust their estimates of a first rate rise based on real time economic data.”
“In Fed Chair Yellen’s accompanying speech and Q+A, she spoke of the risks of raising rates too soon (stifling the economic recovery) or too late (risking an inflation overshoot).”
“That said, US inflation is near 0%, the Dollar and commodity prices have stabilised but not reversed, and to date there have not been sufficient wage or spending pressures to force the Fed into action.”
“Indeed, as Yellen tried to point out the timing of a first rate rise is not as important as the trajectory of interest rates over the next two years, the Fed Chair said ‘whether it be September, December, or March’. This does seem to point to the Fed being more likely to err on the side of caution in the next few months if there are not clear signs inflation may overshoot.”
“Worth noting though, the committee’s ‘dot plot’ for future rate increases does still indicate 2 quarter point increases by the end of the year are expected based on the current economic trajectory. The markets seem to agree with this assessment of a cautious Fed, with the US Dollar weakened across the board…”
(Market News Provided by FXstreet)